One of our client have received a notice for Foreign Exchange Credit used by the client. Our client has purchased and sold goods to china and received the tax paid certificate from the said Chinese Firm. We have utilized the said foreign exemption "UNDER DTAA" while paying the tax. Now the Income Tax department has issued the notice that the said exemption cannot be utilized. Now we have to draft a Reply to this notice and I am unable to do the same. Can you tell me how tho draft notice like what is to be mentioned which documents to take along with us while meeting the Assessing Officer. Format of the same if made available is appreciable. Reply requested as soon as possible.
22 November 2017
Ninad,
you mentioned foreign exchange credit? did you mean Foreign Tax Credit?
there is no format as such, the reply will have to be made on facts and quoting appropriate provision of Chinese DTAA and Indian tax law.
where in the return form did u mention the claim for ftc.
note that thus must be a limited scrutiny to verify the FTC. it doesnt mean that department will deny your claim.
22 November 2017
Yes, I Mean to Say Foreign Tax credit. And yes we do have the Tax Withholding Certificate @ 10% provided by Chinese Supplier. In the relpy Notice I should mentioned the details like the amount received from the Chinese Supplier, Bank Account in which such amount is received, and also attach the with the Notice the with holding Certificates. Am I required to Mentioned the Notifcation No and Rule No.. Or Not. IF yes is What is the Exact Notification No. regarding the same as I am Confused between the various Notification and Rule No. Available on net.
22 November 2017
1. Yes please attach all the documents that you mentioned 2. Give a reference to the ITR i.e. under which schedule did you offer the income from China to tax. Give a break up of that income and that should include the gross amount received from China. You can claim credit only to the extent the income is being offered to tax in the relevant year. Also note that if the average rate of tax applicable to you is lower than 10%, you will receive credit only to that extent and not for the entire 10% 3. From AY 2017-18, the procedure to claim FTC is formalised through Rule 128 & Form 67. Guidance can be taken from this to draft your reply a) Submit a statement that the foreign tax paid by you is not in dispute by you and you have not claimed a refund for this in China b) The claim for foreign tax credit should be at the TT buying rate as on last day of the month immediately preceding the month in which such tax has been deducted. Alternatively you can take the TT buy rate as on 31.03 of the relevant financial year.
For AY prior to AY 2017-18 you can simply refer to the provisions of Section 90 to claim the tax credit. make sure that your ITR properly mentioned the details. in Schedule FSI - Foreign Source of Income, Schedule FA - Details of Foreign Assets and Schedule TR - Tax Relief claimed for taxes outside India.
CAclubindia
