Tax Audit and FTC for Individuals: Rules, Applicability and Form 67

Introduction

Tax Audit and FTC for Individuals involve two separate income-tax compliances. Tax audit applicability depends mainly on whether an individual carries on a business or profession and crosses the prescribed limits or falls within specified presumptive taxation conditions. Foreign Tax Credit (FTC), on the other hand, applies when eligible foreign income is taxed abroad and is also offered or assessed to tax in India.

The framework changed from 1 April 2026 with the Income-tax Act, 2025 and Income-tax Rules, 2026. Therefore, individuals must first identify the relevant tax period before applying tax audit provisions, Form 67 or the new Form No. 44.

When Is Tax Audit Applicable to Individuals?

A tax audit applies because of the individual’s business or professional activity, not merely because the individual holds a position as a director in a company. For Tax Year 2026-27 onward, tax audit is governed by Section 63 of the Income-tax Act, 2025 and Rule 47 of the Income-tax Rules, 2026. Form No. 26 is the prescribed tax audit report under the new framework.

For periods up to FY 2025-26, the corresponding tax audit provision remains Section 44AB of the Income-tax Act, 1961. For a detailed explanation of the earlier audit framework, read Ebizfiling’s guide to tax audit under Section 44AB.

What are the tax audit thresholds for individuals?

The principal limits under Section 63 are:

The enhanced ₹10 crore business threshold applies where cash receipts do not exceed 5% of aggregate receipts and cash payments do not exceed 5% of aggregate payments. For this purpose, prescribed non-account-payee instruments are also treated according to the statutory cash test.

Does being a director of multiple companies make tax audit mandatory?

No. The number of directorships does not determine whether an individual’s accounts require a tax audit.

For example, an individual may be a director in two companies and receive salary or other remuneration. If that individual does not independently carry on a business or profession that attracts Section 63, directorship alone does not create a tax audit requirement.

However, if the same individual also runs a consultancy, professional practice or business, that activity must be separately tested against the applicable audit provisions.

This distinction is particularly important where separate individual returns are being filed for company directors.

How does presumptive taxation affect tax audit applicability?

Tax audit should not be tested only against the ₹1 crore, ₹10 crore or ₹50 lakh thresholds.

Under the new framework, Form No. 26 guidance specifically identifies certain presumptive taxation cases covered by Sections 58(2) or 61(2), Table Sl. Nos. 4 and 5, including cases where income is declared below the applicable deemed income. Tax audit can also apply where a taxpayer opts out of a qualifying presumptive scheme during the relevant lock-in period and the statutory conditions are satisfied.

For the old-law framework and the working of Sections 44AD and 44ADA, see Ebizfiling’s presumptive taxation guide for businesses and professionals.

Therefore, an individual with relatively low turnover should not assume that tax audit is automatically inapplicable without checking the presumptive taxation provisions.

Which tax audit form applies after 1 April 2026?

For tax audits relating to AY 2026-27 and earlier, the old framework continues to use Forms 3CA, 3CB and 3CD, as applicable.

For Tax Year 2026-27 onward, Form No. 26 applies under Section 63 read with Rule 47. The Income Tax Department describes Form No. 26 as the consolidated successor to the earlier Forms 3CA, 3CB and 3CD.

How Does Foreign Tax Credit Work for Individuals?

Foreign Tax Credit is intended to provide relief where eligible foreign income has suffered tax outside India and that income is also taxable in India.

Under the old framework, FTC is governed primarily by Sections 90, 90A or 91 and Rule 128, depending on whether India has a tax treaty with the relevant country.
Under the Income-tax Act, 2025 framework, the corresponding FTC procedure is contained in Rule 76 of the Income-tax Rules, 2026.

Only a resident assessee with qualifying foreign income can claim FTC under the prescribed framework.

For a broader explanation, refer to Ebizfiling’s Foreign Tax Credit in India guide.

How much Foreign Tax Credit can an individual claim?

FTC is not automatically equal to the entire foreign tax paid.

The credit is generally calculated separately for each relevant source of income from a particular country or specified territory and is restricted to the lower of the Indian tax payable on that income or the eligible foreign tax paid on that income.

Where the foreign tax exceeds the amount permitted under the applicable Double Taxation Avoidance Agreement, the excess is ignored for determining the allowable FTC. Under the earlier Rule 128 framework, the same lower-of-two principle also applies.

Hypothetical example: If eligible foreign tax on a particular income is ₹60,000 but the Indian tax attributable to the same income is ₹45,000, the FTC would generally be limited to ₹45,000, subject to the applicable treaty and other conditions.

For treaty-related issues, read Ebizfiling’s Double Taxation Avoidance Agreement guide.

Can FTC be claimed against interest, fees or penalties?

No. Foreign Tax Credit is available against eligible income tax liability and the prescribed surcharge and cess components, but not against amounts payable as interest, fee or penalty.

This principle is expressly reflected in the earlier Rule 128 framework.

Can FTC be claimed for disputed foreign tax?

Generally, no credit is immediately available for foreign tax that is disputed.

Under the earlier Rule 128 framework, disputed foreign tax can become eligible after the dispute is finally settled if the taxpayer furnishes the required evidence of settlement and payment and gives the prescribed undertaking within six months from the end of the month in which the dispute is settled.

The new Rule 76 framework similarly contains a structured procedure for disputed foreign tax, including Form No. 45 for specified settlement situations.

Is Form 67 Still Required for Foreign Tax Credit?

Yes, but only for the tax periods governed by the earlier framework.

For AY 2026-27 and earlier, Rule 128 of the Income-tax Rules, 1962 continues to require Form 67 for claiming eligible Foreign Tax Credit.

For Tax Year 2026-27 onward, the Income-tax Rules, 2026 replace the old FTC Form 67 with Form No. 44. The Income Tax Department’s form-mapping guidance expressly maps old Form 67 to new Form No. 44 for FTC purposes.

This distinction is important because Form No. 67 under the new rules serves a different purpose. Therefore, a generic statement that “Form 67 is mandatory for FTC” is no longer accurate without identifying the relevant tax period.

What is the deadline for filing old Form 67?

For assessment years governed by Rule 128, Form 67 and the prescribed supporting statement or certificate must generally be furnished on or before the end of the relevant assessment year, where the return has been furnished within the permitted original or belated return timeline.

Where the foreign income is included in an updated return, Form 67 relating to that income must be furnished on or before the date on which the updated return is filed.

Therefore, older guidance stating that Form 67 must always be filed before the original ITR due date should not be followed without checking the current Rule 128.

What is the deadline for Form No. 44?

For Tax Year 2026-27 onward, Form No. 44 must generally be furnished within 12 months from the end of the relevant tax year where the corresponding foreign income has been offered to tax in India and the return has been furnished within the time specified under Section 263(1) or 263(4).

Where income is included in an updated return under the relevant provision, Form No. 44 relating to that income must be furnished on or before the date of filing that updated return.

When does Form No. 44 require accountant verification?

Under Rule 76(16), Form No. 44 requires verification by an accountant in either of these cases:

For a company, accountant verification is required irrespective of the amount of foreign tax. For other assessees, including individuals, accountant verification is required where foreign tax paid outside India for the tax year equals or exceeds ₹1 lakh.

Therefore, an individual who has paid less than ₹1 lakh of foreign tax does not fall within this ₹1 lakh accountant-verification condition merely because Form No. 44 is being filed.

What documents are required for an FTC claim?

The taxpayer should maintain documentary evidence showing both the foreign income and the foreign tax paid or deducted.

For Form No. 44, supporting documents may include details of country-wise and source-wise foreign income, foreign tax paid, the applicable DTAA where relevant, and information about any disputed foreign tax. The form is filed electronically through the Income Tax e-Filing Portal.

The underlying evidence of foreign tax may include a certificate or statement from the foreign tax authority or the person responsible for withholding tax, together with the prescribed proof of payment or deduction where applicable.

Individuals dealing specifically with India-US income may also consider Ebizfiling’s India-US Tax Planning Advisory service.

Can an Individual Skip FTC If the Amount Is Small?

An individual may decide not to claim an otherwise available Foreign Tax Credit. However, this decision should not be confused with the obligation to report foreign income.

For example, if an individual decides that claiming a relatively small FTC is not worthwhile, the individual may choose not to claim that credit. This does not automatically permit the corresponding foreign income to be omitted from the Indian return.

Foreign income reporting depends separately on factors such as residential status, the nature of income and the applicable return requirements.

Therefore:

No FTC claim does not mean no foreign income disclosure

This distinction should be checked carefully before filing.

How Should Individuals Handle Tax Audit and FTC in the Same ITR?

Tax Audit and FTC for Individuals can arise in the same return, but the two requirements must be tested separately.

First, classify each income source correctly. An individual may have salary, director remuneration, professional fees, business income, overseas salary, dividends, interest or foreign capital gains.

Next, determine whether any business or professional activity triggers Section 63 or the applicable old-law tax audit provision. The existence of foreign income does not itself trigger a tax audit.

Foreign income should then be matched with the tax paid or deducted abroad. The taxpayer should identify whether the income is taxable in India, whether a DTAA applies and how much FTC is legally available.

Finally, use the correct return form and the correct FTC form for the relevant period. Ebizfiling’s Income Tax Return filing service can assist with return preparation where the taxpayer has multiple income sources.

For practical return-filing steps, taxpayers may also refer to Ebizfiling’s ITR filing guide.

What common errors should individuals avoid?

Individuals should avoid assuming that being a director automatically creates a tax audit requirement. Similarly, the ₹10 crore enhanced business threshold should not be applied unless both prescribed cash conditions are satisfied.

In FTC cases, common errors include claiming the entire foreign tax without applying the Indian tax limitation, claiming disputed foreign tax prematurely, using Form 67 for a period governed by the new Rules, or failing to include the corresponding foreign income in the Indian return.

Another error is applying only the normal business or professional turnover thresholds without checking whether a presumptive taxation provision independently triggers an audit.

How Can Ebizfiling Help With Tax Audit and FTC?

Tax Audit and FTC for Individuals can require different compliance checks within the same return. Ebizfiling can assist in reviewing business or professional income, checking whether a tax audit applies, examining relevant presumptive taxation conditions and identifying the audit form applicable to the relevant tax period.

For foreign income, Ebizfiling can assist with reviewing residential status, foreign tax documents, applicable DTAA provisions, FTC computation and the appropriate Form 67 or Form No. 44 requirement based on the relevant year.

Where the matter involves broader cross-border or business tax questions, Ebizfiling’s business advisory and tax consulting services may also be relevant.

Ebizfiling provides tax filing and compliance assistance based on the information and documents provided by the taxpayer. The availability of FTC, tax audit applicability and acceptance of a return remain subject to the applicable law and the Income Tax Department.

Need help with tax audit or Foreign Tax Credit compliance? Connect with Ebizfiling for a case-specific review before filing.

Conclusion

Tax Audit and FTC for Individuals are separate compliance areas and should be examined independently. Tax audit depends on business or professional activity, turnover, gross receipts and specified presumptive taxation conditions, while FTC depends on eligible foreign income, foreign tax paid and Indian tax on the same income.

For Tax Year 2026-27 onward, individuals should apply the Income-tax Act, 2025 and Income-tax Rules, 2026 framework, including Section 63 and Form No. 26 for tax audit and Rule 76 with Form No. 44 for Foreign Tax Credit. Form 67 continues to remain relevant for earlier assessment years governed by Rule 128.

Frquently Asked Questions