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Suppose, you are a resident and ordinarily resident of Country A and are paying taxes in Country A. At the same time, you are also earning income from Country B and paying taxes in Country B for the income earned there. By virtue of your residential status, your global income would be taxable in Country A, which means you would be liable to pay taxes in Country A for the income earned in Country B as well. This would result in double taxation. To avoid this and reduce the tax burden, you would be given the Foreign Tax Credit (FTC) against the tax payable in Country A for the taxes paid in Country B.

Through this article let us understand how to avail Foreign Tax Credit.

How to avail Foreign Tax Credit

The Concept of FTC in India

Sections 90 and 91 of the Indian Income Tax Act, 1961 deals with Foreign Tax Credit. Section 90 of the Act, deals with providing FTC in cases where India has a Double Tax Avoidance Agreement (DTAA) with another country and such DTAA provides for claiming DTAA. Whereas, Section 91 of the Act, deals with providing FTC in situations where there is no DTAA available with the country in which the income is earned by the taxpayer.

As per rule 128 of Income Tax Rules, FTC shall be provided in the following manner-

  1. FTC is to be allowed in the year in which the income corresponding to such tax has been offered or assessed to tax in India.
  2. FTC shall be available against the amount of tax, surcharge and cess payable under the Indian tax laws but not against interest, fee or penalty.
  3. FTC shall not be available if the foreign tax is a disputed one.
  4. FTC is available even on tax payable under Section 115JB (Minimum Alternate Tax) or Section 115JC(Alternate Minimum Tax)
  5. FTC shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country;
  6. FTC shall be lower of, tax payable on such income under the Indian tax laws and the foreign tax paid;
  7. FTC shall be determined by conversion of the currency of payment of the foreign tax at the Telegraphic Transfer Buying Rate on the last day of the month immediately preceding the month in which such tax has been paid or deducted.

Submission of Documents for availing FTC

For availing the FTC, the following documents are required to be furnished as per Rule 128 of Income Tax Rules-

  1. A statement of income from the country or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in Form No.67 and verified in the manner specified therein;
  2. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee,-
  3. from the tax authority of the country or the specified territory outside India; or
  4. from the person responsible for deduction of such tax; or
  5. signed by the assessee:

Provided that the statement furnished by the assessee in clause (c) shall be valid if it is accompanied by,-

  1. an acknowledgement of online payment or bank counterfoil of challan for payment of tax where the payment has been made by the assessee
  2. proof of deduction where the tax has been deducted

What is Form 67?

Form 67 is a document to be furnished in order to avail FTC. The Form 67 shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139.

Procedure for filing Form 67

The CBDT, vide notification no. 9/2017 dated 19 September 2017 has prescribed the procedure for filing Form 67 which have been enumerated here:

  1. Form 67 is to be prepared and submitted online for taxpayers who are mandated to file their income tax returns electronically.
  2. The form is available on the e-filing portal of the income tax department in the taxpayer's account.
  3. Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is mandatory to submit Form 67.
  4. Submission of Form 67 shall precede the filing of return of income

Filling and submission of Form 67

  1. Form 67 shall be available to all the taxpayers' logins. The taxpayer is required to login into the e-filing portal using their valid credentials. A link for filing the form has been provided under “E-file-Prepare and submit online forms (Other than ITR)”
  2. Select Form 67 and the AY from the drop down.
  3. Instruction to fill the form is enclosed along with Form 67. You can submit the completed form 67 by clicking on the 'submit' button. You can also save the form filled as a draft so that you can make some changes later and then submit it.

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Category Income Tax, Other Articles by - Neethi V. Kannanth