Income Tax Taxation

What is Foreign Tax Credit and How to Claim it?

Section 90 and Section 91 of the Income Tax Act,1961 defines Foreign Tax Credit. Section 90 of the Income Tax Act, 1961 includes a tax credit for countries in which India has entered into a Double Tax Avoidance Agreement and Section 91 deals with a tax credit for countries where DTAA is not applicable or not in force.

For Instance:

Country A (Residence State) –A Tax Resident of Country A – Recipient of Income

Country B (Source State) – which holds the portion of taxes deducted from the person who has received income in the Source State.

Further Residence state will deduct taxes on the income received by the taxpayer. In such a case tax resident’s income will be taxable twice in the residence state and source state. So, this address this issue Foreign Tax Credit was introduced.

Foreign Tax Credit was introduced to claim deduction or credit of taxes paid in Source State against liability in Residence State.

Read our article:All Types of Income Tax Return Filing In India

The concept of Foreign tax Credit in India:

As per the tax laws of India Section 90 and 91 were introduced. As explained above Section 90 of the Income Tax Act^[1], 1961 includes a tax credit for countries in which India has entered into a Double Tax Avoidance Agreement and Section 91 deals with a tax credit for countries where DTAA is not applicable or not in force.

Further Rules for claiming Foreign Tax Credit (FTC) has been notified under Rule 128 w.e.f. 01/04/2017 which will help to clear out the ambiguity in case of claiming FTC:

• FTC is to be allowed in the year in which income corresponding to such tax has been offered or assessed to tax in India.

• FTC shall be available against the amount of tax, surcharge, and cess payable under the Indian Laws excluding against interest fee or any penalty.

• FTC shall not be available if the foreign tax is disputed one.

• FTC is available even id tax is paid under Section 115JB (Minimum Alternate Tax)

• FTC shall be aggregate of the amount of credit calculated separately for each source of income arising from a particular country.

• FTC shall be lower of tax payable under Indian Laws and foreign taxes paid.

• FTC shall be calculated on the basis of conversion of the currency of payment of the foreign tax at Telegraphic Transfer Buying Rate on the last day of the month immediately preceding the month in which such amount of tax is paid or deducted.

What are the documents required to be furnished for claiming FTC?

As per Rule 128, the following documents are required for filing FTC on or before the due date of filing the return:

A Statement of Foreign income offered to tax or foreign tax deducted or paid on such income in Form No. 67

1. Certificate or statement specifying the nature of the amount of tax deducted therefrom or paid by the taxpayer
   • From the tax authority of a foreign country
   • From the person responsible for deduction of such tax
   • Signed by the taxpayer

2. Proof of taxes paid outside India.

What is Form 67?

Form 67 as mentioned above is a document to be furnished for claiming FTC by a taxpayer. It is very essential to be furnished on or before the due date of filing return under Section 139(1).

What is the procedure to file Form 67?

CBDT vide its notification no 9/2017 dated 19^th September 2017 which has prescribed the procedure to file Form 67

1. Form 67 is to be prepared and submitted online for taxpayers who are required to file a return on or before the due date.
2. The form is available on the E filing portal of the Income Tax Department in the taxpayer’s login.
3. Submission of the Form is to be done through Digital Signature or Electronic Verification Code to submit form 67.
4. Submission of Form 67 has to be done before filing your Income Tax return.

How to prepare Form 67:

As a taxpayer, you are required to log in to your account at E Filing Portal^[1] of the Income Tax Department using login credentials. In the Income-tax for you have to select Form 67. Select the assessment year from the drop-down list provided. On the page, you have to fill in the basic details. You can change or modify things that are required.

After filling the basic information, you can move to the next tab which required details of income from a country or specified country and FTC claimed. Lets us explain the points which you have to fill:

1. Name of the Country or specified territory from where you have received the income.
2. Source of Income. However, if there are salary income or house property income you have to disclose them separately.
3. Income received from outside India, please mentioned the amount which you have received from a foreign country or specified territory.
4. Mention details of taxes paid outside India which will include the amount of taxes paid and the rate at which it is paid.
5. Tax Payable on income as per the normal provisions in India: That amount that you have paid as tax in India as foreign income.
6. Tax payable on such income under section 115JB: If you are covered Alternate minimum Tax then you have to mention the amount of minimum tax payable under the said provision.
7. Credit claimed under Section 90/90A: Applicable for people for countries that have entered into Double Taxation Avoidance Agreement with India.
8. Credit claimed under section 91 where Double taxation avoidance Agreement is not entered.
9. After all, data is filled the amount of FTC will be auto-calculated.
10. After reviewing all the details, you have to submit Form 67 with the DSC or EVC

Conclusion:

After explaining the whole process of Filing Form 67 it is not easy to fill in the details correctly and claim the FTC and file the Form properly. For more information, you can talk to our Tax expert at Enterslice.

Read our article:Double Taxation Avoidance Agreement for NRI