Foreign Tax Credit – Claiming and Remembering to File Form 67
Foreign Tax Credit or FTC can be understood by inferring to a scenario or situation where Mr. A who is a resident of India, is earning a certain amount of income from Australia which is the source country or state. Australia which here is the source state withholds a portion of taxes on the income before it is remitted to Mr. A, who is the owner of such income. Now, India which is the resident state or the country of residence of Mr. A would again tax him as in case of a resident taxpayer, global income taxed.
This would lead to the double taxation of the income, one in the source state and another in the residence state also. The tax laws with an intention to deal with this and avoid the levying of double tax on income earned provide various mechanisms whereby the residence state allows a deduction of taxes which was paid by the taxpayer or assessee in the source state from the total tax liability which is arising in the residence state which in the given case is India.
And this concept of claiming the credit or such deduction of taxes which was already paid in the source state against the tax liability which is arising in the residence country is known as FTC or Foreign Tax Credit.
FTC in India
As per the Income Tax Act of India, section 90 and section 91 is dealing with the concept of FTC. In case of those countries with which India has entered into or is having the Double Taxation Avoidance Agreements (DTAA), section 90 shall be applicable and shall provide for the claiming of the FTC in case of taxes paid in a foreign country or the source country. But with respect to those payments which was received by the taxpayer from a country with which India has not entered into DTAA, section 91 shall be appliable for regulating the claiming of the FTC with respect to the taxes which was paid by the assessee on the income earned from abroad while paying taxes in India as per the Income Tax Act.
Rule 128 of Income Tax Rules provides the following clarity with respect to the claiming of FTC:
– FTC shall be allowed in the year during which the income on which such tax was paid in the source country has been assessed for taxing in India
– FTC shall not be provided on a foreign tax which is under dispute
– FTC shall be available for the payment of tax, surcharge, and cess which is payable in India, but not for the payment of interest, fine, or penalty
– FTC shall also be made available on tax payable under Section 115JB which is the Minimum Alternate Tax
– FTC shall be the lower of taxa payable on the income earned in a foreign country as per the Indian Tax Laws and the tax actually paid in the foreign country or source country
– FTC shall be the aggregate of amounts of credit of taxes which was computed separately in case of incomes arising from different countries
– FTC shall be computed by conducting the conversion of the currency which was used for remitting foreign tax at the Telegraphic Transfer Buying Rate on the last day of the month which is directly preceding the month in which such tax has been remittedor was deducted.
Computation of Amount of FTC
The FTC claimed shall be the total of amounts of credits which are computed separately in case of each source of income or the foreign countries from which such income was earned. But it shall be the lower of the following:
- Tax payable as per the Income Tax Act on the total amount of foreign income earned by the assessee, and
- Foreign Tax which was actually paid by the assessee on such foreign income.
And in case of the payment of foreign tax over and above the amount of tax which was payable or deductible as per the agreement made between two countries, then such excess amount shall be ignored.
Documents Required for Claiming FTC
As per rule 128, a taxpayer shall produce the following documents for claiming FTC:
- Form No. 67 which is the statement of income that holds details:
– of income that has been derived from a country or specified territory outside India and offered to tax, and
– the details of tax that was paid or deducted on such income.
2. Certificate or Statement from such authority of the foreign country or person responsible for deducting tax from such income specifying:
– nature of income, and
– amount of tax which was deducted or paid by the assessee on such income.
The statement signed by the person will also be lawful if the same is escorted, by an acknowledgment of counterfoil issued by bank or an acknowledgment of remittance made online or an acknowledgment of challan for remittance of tax on such foreign income, where the payment has been made by the taxpayer.
iii. Proof of the tax payment outside of India or the deduction of the tax.
And all these documents along with Form No. 67 shall be furnished on or before the due date of filing on the Income Tax Returns as per section 139(1) of the Income Tax Act.
Procedure for filing Form No. 67
- The assessee shall log in to the e-filing portal using his respective login ID and password.
- Now navigate the path as follows:
- E-file, then choose
- Prepare and Submit Online Forms (other than ITR), then choose
- Select Form 67.
iii. Details that should be furnished in Form 67 includes the following:
– Name of the assessee;
– Permanent Account Number;
– Address of the assessee;
– Assessment Year for which the FTC is claimed;
– Details of income derived from the country or specified territory outside India or FTC to be claimed.
The e-signature which is the Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) verification is compulsory for filing Form 67.
It shall be filed prior to the filing of return of income or ITR.
Thus, we can conclude that Form 67 is a crucial document that should be filed before the filing of the ITRs pertaining to a particular AY, for claiming the credit of any foreign tax paid by the taxpayers such that there is no double tax paid by the assessee on the same income. And the due date for this shall be kept as same as the ITR such that the reminder for filing should be the same as the ITRs as this should be filed first as stipulated already.