Foreign Tax Credit – Documents, Rules & Regulations, and “How to claim Tax Credit on Foreign Income of a Resident in India?”

Introduction

People and businesses frequently go abroad for business purposes and to investigate foreign markets as a result of globalization. This necessitates the payment of taxes on income generated abroad. The question is whether an Indian resident who makes money and pays taxes abroad is eligible to claim a tax credit for such payments, and if so, how. This article will emphasis on “How to Claim Tax Credit on Foreign of a Resident in India?”, information on Foreign Tax Credit in India, and documents to claim Foreign Tax Credit.

Foreign Tax Credit in India

Indian tax law deals with the idea of FTC (Foreign Tax Credit) in sections 90 and 91 of the Income-tax Act. Section 91 deals with FTC claims in situations where India has not entered into a DTAA with the country where a taxpayer’s income originates. Section 90 discusses FTC claims in cases where India has entered into a Double Taxation Avoidance Agreement (DTAA) with another country and such DTAA permits such FTC claims. According to these sections, an Indian resident who has paid taxes abroad may claim a credit for those taxes against any Indian taxes that are still owed.

Rules and Regulation for claiming tax credit on Foreign Income of a Resident

• FTC shall be available against the amount of tax, surcharge, and Cess payable under Indian tax rules but not against interest, fee, or penalty.
• The Foreign Tax Credit (FTC) is the total of the credit amounts computed separately for each source of income originating in a specific country.
• FTC shall be available in the year in which the income corresponding to such tax has been offered or assessed to tax in India.
• If the foreign tax is disputed than foreign tax credit is not applicable.
• The FTC is calculated by converting the foreign tax payment currency at the Telegraphic Transfer Buying Rate on the last day of the month that precedes the month in which the foreign tax was paid or deducted.
• Even tax payable under Section 115JB (Minimum Alternate Tax) is subject to Foreign Tax Credit.
• The FTC is equal to the lesser of the foreign tax paid and the tax that would have been due on that income under Indian tax laws.

Documents to claim Tax Credit on Foreign Income of a Resident in India

According to Rule 128, the taxpayer must submit the following paperwork on or before the return filing deadline in order to claim FTC:

• A statement of Foreign income offered to tax.
• Information on the foreign tax deduction on the income in Form 67 of the Income Tax.
• Statement or certificate stating the type of income and the amount of tax withheld or paid by the taxpayer.
• An entity needs to provide proofs for the payments of taxes outside India.

Below is the Statement or certificate that needs to be attached with the Form 67 for FTC Claim:

• From the foreign country’s tax authority,
• with a signature from the person in charge of the tax deduction,
• And taxpayer Sign on the documents.

How to claim Tax Credit on Foreign Income of a Resident in India?

The CBDT prescribed the Form 67 filing procedure, which has been listed above, in notification no. 9/2017 dated September 19, 2017:

• For taxpayers who are required to file their income tax returns electronically, Form 67 must be completed and filed online. This form is available in the taxpayer’s account on the income tax department’s e-filing portal.
• Form 67 must be submitted with a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
• Form 67 must be submitted before a return of income is filed.

Below is the detailed explanation for submitting Form 67:

• For all taxpayer logins, Form 67 shall be accessible. The taxpayer must use their legitimate login information to access the e-filing portal. There is a link under “E-file-Prepare and submit online forms (Other than ITR)” that can be used to file the form.
• Pick AY (Assessment Year) and Form 67 from the drop-down menu.
• Along with Form 67, there are instructions for filling it out. By pressing the “submit” button. If you want to make any changes to the form then you can save Form 67 as a draft and make the changes you want to do at your convenience, and after that you can submit a complete Form to the Income Tax Portal.
• A success message, Transaction ID, and Acknowledgement Number are displayed following a successful e-Verification.
• A confirmation message will also be sent to the email address you registered with the income tax e-Filing portal.

FAQs on claiming FTC for Resident in India

1. What is Form 67 of the Income Tax Act?

A resident taxpayer maybe entitled to a credit for any foreign taxes paid outside of India under Rule 128 of the Income Tax Rules, 1962. Only if the assessee submits Form 67 with the necessary information within the deadlines will the credit be granted.

The declaration in Form 67 must be submitted on or before the deadline for submitting the return of income under subsection (1) of Section 139 if a resident taxpayer is entitled to a credit for the amount of any foreign taxes paid in a nation other than India by deduction or another method. If the carry-back of the current year’s loss results in a refund of foreign tax for which credit was claimed in any prior years, Form 67 will also need to be provided.

2. Would my overseas income be taxed in India if I am an NRI?

No, your overseas income will not be taxed in India if you are an NRI or a resident but not ordinarily resident (RNOR). Only the income you make in India is subject to tax.

3. Can I get my TDS return for foreign income earned abroad?

The TDS (Tax Deducted at Source) that was taken abroad cannot be refunded. However, you can use DTAA standards to obtain an exemption or tax credit on the TDS that was taken.