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Foreign Tax Credit rules in India

Updated: Sep 28, 2022

The foreign tax credit is a non-returnable tax credit for a foreign government’s income taxes due to foreign income tax withholdings. The foreign tax credit is accessible to anyone who either works in a foreign country or has investment income from a foreign source. The foreign tax credit is a tax break presented by the government to reduce certain taxpayers’ tax liability. The foreign tax credit applies while some or all the foreign earned income can be rejected from federal income tax; a taxpayer cannot declare foreign income earned and foreign tax credit exclusions on the same income.

The concept of FTC in India According to India’s tax laws, sections 90 and 91 of the income-tax act deal with FTC’s concept. Section 90 discusses claiming FTC in a case where India has entered into Double Taxation Avoidance Agreement (DTAA) with alternate country and such DTAA issues for declaring FTC. In contrast, Section 91 deals with claiming FTC in a scheme where India has not arrived into a DTAA with the country where the income emerges for a taxpayer. Under these sections, if the taxpayer is a citizen of India and he has paid taxes outside India, he can assert a credit of such foreign taxes paid against his tax payable in India.

Rules for declaring FTC has advised under rule 128 w.e.f 1.4.2017, which have helped clear out uncertainty around claiming of FTC, some of which have been briefly captured hereunder:

  • FTC to be permitted in the year in which income equivalent such tax has offered to tax in India;

  • FTC shall be accessible against the amount of tax, extra pay, and cess payable under the Indian tax laws but not break interest, fee, or penalty;

  • FTC shall not be accessible if the foreign tax is a disagreed one;

  • FTC is accessible even on tax payable under Section 115JB (Minimum Alternate Tax);

  • FTC shall be the accumulation of the amounts of credit evaluated independently for each source of income emerging from a specific country;

  • FTC shall be lower of, tax unsettled on such income under the Indian tax laws and the foreign tax paid;

  • FTC shall be resolved by altering the currency of refund of the foreign tax at the Telegraphic Transfer Buying Rate on the last day of the month instantly previous to the month in which such tax has been reimbursed or reduced.

Documents essential to be furnished for claiming FTC By Rule 128, to claim FTC, the taxpayer is required to file the following documents on or before the due date of filing of return

1. A statement of:

  • foreign income provided to tax

  • foreign tax reduced or paid on such income in Form No. 67

2. Certificate or statement identifying the nature of income and the amount of tax reduced from that place or paid by the taxpayer:

  • From the tax charge of the foreign country

  • From the person accountable for the deduction of such tax

  • signed by the taxpayer

3. Proof of payment of taxes outside India.

Form No. 67 Form no. 67 is a critical document that has to equipped to claim FTC by a taxpayer. It is also necessary that it be enhanced on or before the final date of filing return of income under section 139(1), i.e. an actual return of income.

Procedure for filing Form 67

  • Form 67 is to be developed and accepted online for taxpayers who are assigned to file their income tax returns electronically;

  • This form is accessible on the e-filing portal of the income tax division in the taxpayer’s account.

  • Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is required to consent Form 67

  • Submission of Form 67 shall antecede the filing of return of income

Submission of Form 67

  • Form 67 shall be accessible to all the taxpayers’ logins. The taxpayer is needed to login into the e-filing portal using their sustainable sanctions. An association for filing the form has been granted under “E-file-Prepare and relent online forms (Other than ITR)”

  • Form 67 selected, and the AY from the drop-down.

  • Directions to fill the form are included along with Form 67. You can relent the concluded form 67 by clicking on the submit button. You can also save the form charged as a draft so that you can make some alteration later and then submit it.

At Itseki Mercurius India we assist our clients with various income tax compliances, including income tax assessments, TDS returns, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about recent updates on foreign tax credit rules, kindly contact us .

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