Tax deducted by a srilanka client from the service charges
This query is : Resolved
26 February 2017
I am working for a firm in Bangalore providing Information Technology Service. We deputed our staff to Srilanka to provide IT Service at clients location.. We are Income tax Assesses in India. Our clients deducted Income tax from our payment, paid to the Taxation Authorities in Srilanka and issued Certificates. As per India-Srilanka Double Taxation Avoidance Agreement .can we adjust that tax in our tax dues in India. We have shown the transactions, payments received and tax deducted in our accounts in INR (As per exchange rates noted in Bank's Credit Advise). All payments are in USD through Bank. In their Tax Deduction Certificates they had shown the tax payment made in Srilankan Rupee and noted the corresponding value in USD. Our adviser says as the tax deducted in Srilanka and paid to that Government we have to have proof that the amount reached Indian Indian Tax Department.If we could not adjust that tax deduction in our tax dues we will be at a loss. We have shown the Income from that transaction and if we could not adjust the tax deduction for it how can we get back that money. Is there any specific clause in Srilanka-India Double Taxation Avoidance Agreement for Tax Deduction
I am working for a firm in Bangalore providing Information Technology Service. We deputed our staff to Srilanka to provide IT Service at clients location.. We are Income tax Assesses in India. Our clients deducted Income tax from our payment, paid to the Taxation Authorities in Srilanka and issued Certificates. As per India-Srilanka Double Taxation Avoidance Agreement .can we adjust that tax in our tax dues in India. We have shown the transactions, payments received and tax deducted in our accounts in INR (As per exchange rates noted in Bank's Credit Advise). All payments are in USD through Bank. In their Tax Deduction Certificates they had shown the tax payment made in Srilankan Rupee and noted the corresponding value in USD. Our adviser says as the tax deducted in Srilanka and paid to that Government we have to have proof that the amount reached Indian Indian Tax Department.If we could not adjust that tax deduction in our tax dues we will be at a loss. We have shown the Income from that transaction and if we could not adjust the tax deduction for it how can we get back that money. Is there any specific clause in Srilanka-India Double Taxation Avoidance Agreement for Tax Deduction
01 March 2017
Article 23 "METHODS FOR ELIMINATION OF DOUBLE TAXATION" of the DTAA between India and Sri Lanka is relevant. This Article provides that for income which is taxable in India and in Sri Lanka, deduction is to be allowed from the tax, the tax that is paid in Sri Lanka. However, it may be noted that the deduction cannot exceed the tax in India on the said income.
CBDT has now notified Rule 128 under the Income-tax Rules, 1962 (the Rules) vide its Notification No. 54/2016 dated 27 June 2016.
Credit of any foreign tax shall be allowed on furnishing the following documents by the
assessee, namely:-
(i) 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;
(ii) certificate or statement specifying the nature of income and the amount of tax
deducted therefrom or paid by the assessee,-
(a) from the tax authority of the country or specified territory outside India; or
(b) from the person responsible for deduction of such tax; or
(c) signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it
is accompanied by,-
(A) an acknowledgment of online payment or bank counter foil or challan for
payment of tax where the payment has been made by the assessee;
(B) proof of deduction where the tax has been deducted.
(9) The statement in Form No.67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income.
CBDT has now notified Rule 128 under the Income-tax Rules, 1962 (the Rules) vide its Notification No. 54/2016 dated 27 June 2016.
Credit of any foreign tax shall be allowed on furnishing the following documents by the
assessee, namely:-
(i) 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;
(ii) certificate or statement specifying the nature of income and the amount of tax
deducted therefrom or paid by the assessee,-
(a) from the tax authority of the country or specified territory outside India; or
(b) from the person responsible for deduction of such tax; or
(c) signed by the assessee:
Provided that the statement furnished by the assessee in clause (c) shall be valid if it
is accompanied by,-
(A) an acknowledgment of online payment or bank counter foil or challan for
payment of tax where the payment has been made by the assessee;
(B) proof of deduction where the tax has been deducted.
(9) The statement in Form No.67 referred to in clause (i) of sub-rule (8) and the certificate or the statement referred to in clause (ii) of sub-rule (8) shall be furnished on or before the due date specified for furnishing the return of income under sub-section (1) of section 139, in the manner specified for furnishing such return of income.
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19 April 2017
Thank you Mr.Anand for your reply. In our case tax was paid by our clients on our behalf and obtained Tax Paid Certificate in our favour from Srilanka Tax Authorities. They had deducted the tax payment from the payment due to us. It is not TDS Certificate. It is Tax Paid Certificate in our favour. Now our Tax Consultant wants to know at which column of online return (for Proprietorship), the claim has to be made.
26 July 2025
This is a classic case of **Foreign Tax Credit (FTC)** under the India-Sri Lanka Double Taxation Avoidance Agreement (DTAA). Let me break it down clearly for you:
---
### Situation Summary:
* You are an Indian taxpayer providing IT services in Sri Lanka.
* Your Sri Lankan client deducted tax on your payments and paid it to Sri Lankan tax authorities.
* You have a **Tax Paid Certificate** from Sri Lanka (not a TDS certificate).
* You want to claim credit for this foreign tax paid against your Indian tax liability.
---
### Key Points about Foreign Tax Credit under India-Sri Lanka DTAA:
1. **Foreign Tax Credit (FTC) Purpose:**
* To avoid double taxation on the same income, India allows you to **claim credit for the tax paid in Sri Lanka** on income that is also taxable in India.
2. **Proof of Tax Paid:**
* The **Tax Paid Certificate** from Sri Lanka is valid proof.
* It shows tax was deducted and paid on your behalf.
* You do **not need** the tax to have been physically remitted to Indian tax authorities.
* It is sufficient that it was paid in Sri Lanka on the income that is taxable in India.
3. **Applicable Law & Provisions:**
* Section 90 of the Indian Income Tax Act allows relief for foreign tax paid under a DTAA.
* You can claim FTC in India, subject to certain limits (you cannot claim credit more than the Indian tax payable on that income).
4. **Where to Claim FTC in Indian Income Tax Return (ITR):**
For a **Proprietorship (Individual) taxpayer**, filing the Income Tax Return:
* In **ITR-3 or ITR-4** (depending on your nature of business):
* Go to the **Schedule FSI (Foreign Source Income)** section.
* Enter the details of **foreign income** and **foreign tax paid**.
* Or in case of other ITRs, use **Schedule TR (Tax Relief)** section.
This schedule is designed to capture income earned abroad and taxes paid abroad for claiming relief.
5. **Documentation to Keep Ready:**
* Contract/agreement with Sri Lankan client.
* Payment receipts showing the amount paid by client.
* Tax Paid Certificate issued by Sri Lankan Tax Authorities.
* Bank statements showing receipt of net payment.
* Exchange rate details used for conversion to INR.
---
### Practical Steps:
* Report the full income (gross before tax deduction) in your ITR.
* Claim Foreign Tax Credit for the tax deducted/paid in Sri Lanka.
* Submit relevant documentary evidence if required by Indian tax authorities.
* Maintain all records for scrutiny, if any.
---
### Additional Notes:
* Your consultant is correct that the **tax does not need to be physically remitted to India**; the payment to Sri Lanka suffices.
* If you fail to claim FTC, you may pay double tax (in both countries).
* If excess tax is deducted by the client in Sri Lanka, you may approach Sri Lankan tax authorities for refund.
---
If you want, I can help you draft the details for filling Schedule FSI/TR or help with documentation. Would that help?
---
### Situation Summary:
* You are an Indian taxpayer providing IT services in Sri Lanka.
* Your Sri Lankan client deducted tax on your payments and paid it to Sri Lankan tax authorities.
* You have a **Tax Paid Certificate** from Sri Lanka (not a TDS certificate).
* You want to claim credit for this foreign tax paid against your Indian tax liability.
---
### Key Points about Foreign Tax Credit under India-Sri Lanka DTAA:
1. **Foreign Tax Credit (FTC) Purpose:**
* To avoid double taxation on the same income, India allows you to **claim credit for the tax paid in Sri Lanka** on income that is also taxable in India.
2. **Proof of Tax Paid:**
* The **Tax Paid Certificate** from Sri Lanka is valid proof.
* It shows tax was deducted and paid on your behalf.
* You do **not need** the tax to have been physically remitted to Indian tax authorities.
* It is sufficient that it was paid in Sri Lanka on the income that is taxable in India.
3. **Applicable Law & Provisions:**
* Section 90 of the Indian Income Tax Act allows relief for foreign tax paid under a DTAA.
* You can claim FTC in India, subject to certain limits (you cannot claim credit more than the Indian tax payable on that income).
4. **Where to Claim FTC in Indian Income Tax Return (ITR):**
For a **Proprietorship (Individual) taxpayer**, filing the Income Tax Return:
* In **ITR-3 or ITR-4** (depending on your nature of business):
* Go to the **Schedule FSI (Foreign Source Income)** section.
* Enter the details of **foreign income** and **foreign tax paid**.
* Or in case of other ITRs, use **Schedule TR (Tax Relief)** section.
This schedule is designed to capture income earned abroad and taxes paid abroad for claiming relief.
5. **Documentation to Keep Ready:**
* Contract/agreement with Sri Lankan client.
* Payment receipts showing the amount paid by client.
* Tax Paid Certificate issued by Sri Lankan Tax Authorities.
* Bank statements showing receipt of net payment.
* Exchange rate details used for conversion to INR.
---
### Practical Steps:
* Report the full income (gross before tax deduction) in your ITR.
* Claim Foreign Tax Credit for the tax deducted/paid in Sri Lanka.
* Submit relevant documentary evidence if required by Indian tax authorities.
* Maintain all records for scrutiny, if any.
---
### Additional Notes:
* Your consultant is correct that the **tax does not need to be physically remitted to India**; the payment to Sri Lanka suffices.
* If you fail to claim FTC, you may pay double tax (in both countries).
* If excess tax is deducted by the client in Sri Lanka, you may approach Sri Lankan tax authorities for refund.
---
If you want, I can help you draft the details for filling Schedule FSI/TR or help with documentation. Would that help?
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