Foreign Tax Credit and how to claim it using form 67

Hello, in this post we will discuss on Foreign Tax Credit and how can a taxpayer claim it using Form 67 of Income Tax.

We cover the following topics for you in this post:

What is Foreign Tax Credit?

As per rule 128(1) of the Income Tax Rules, the concept of claiming deduction /credit of taxes a taxpayer pays in the Source State against tax liability in Residence State (India) is called Foreign Tax Credit.

Foreign Tax Credit is provided by the government to reduce the tax liability of certain taxpayers. FTC is available to anyone who either works in a foreign country /investment income from a foreign source.

So, to avoid the burden of double taxation on a taxpayer FTC is introduced. Earlier they have to pay tax both in the Source State as well as in the Residence State.

Foreign Tax Credit in India

In India Sections 90 and 91 of ITA deals with the concept of FTC.

Section 90 refers to claiming of FTC in a case where India has entered into a DTAA (Double Taxation Avoidance Agreement ) with another country and such DTAA provides for claiming such FTC.

Section 91 deals with claiming of FTC if India has not entered into a DTAA with the country where the income arises for a taxpayer.

See the list of DTAA rates applicable for various countries.

If the taxpayer is an Indian resident and pays tax outside India, then he can claim credit for the foreign tax paid against his tax payable in India.

As per rule 128 of the Income Tax Act, Rules for claiming FTC are:

  • FTC can be claimed in the year in which the taxpayer’s income corresponding to the taxes is offered or assessed to be taxed in India.
  • It is available against the tax amount, surcharge, and the cess payable under Indian tax laws. But not against any interest, fees, or penalty.
  • If the foreign tax is in dispute, FTC is not available.
  • FTC is the total of all amounts of credit calculated separately for each income source in a specific country.
  • It has a lesser amount between the total foreign tax paid and the tax payable on such income under Indian tax laws.
  • It is also available for the tax payable under Section 115JB (minimum alternate tax).
  • FTC is determined by the currency conversion during the foreign tax payment at the telegraphic transfer buying rate on the last day of the month, immediately preceding the month in which the tax was deducted or paid.

Documents required to claim FTC

According to Rule 128, to claim FTC a taxpayer needs to file the following documents:

  1. Form No. 67
    • It contains the statement of income from a country or specified territory outside India and foreign tax credit.
  2. Certificate or statement from
    • The tax authority of the foreign country or from the person responsible for the tax deduction.
  3. Deduction proof
    • When the tax is deducted, it should be noted in Form 67 with other required documents.

Filing and Submission of Form 67

  1. Login to your account in the e-filing portal of the income tax department.
  2. Next from the dropdown, select Form 67 and AY.
  3. Then enter the details of income earned from a foreign country or any specified territory outside India. The taxpayer must provide his FTC details here.
  4. After entering all the details, save it as a draft to review it later. Have a thorough review of the details and then Submit Form 67.

Note: The taxpayer’s basic information should be prefilled (name, PAN, and address details). He/she can also correct the address details given.

With that, we are wrapping up this post on Foreign Tax Credit. Share with us your queries and views in the comments section.