ITR filing 2024: Avoiding double-taxation: How Form 67 can help you claim foreign tax credit

The former deals with claiming FTC in scenarios where India has signed Double Taxation Avoidance Agreements (DTAAs) with foreign countries and it provides for claiming FTC.

Section 91, on the other hand, provides for FTC where there is no DTAA. In such cases, FTC is allowed, based on the taxes paid in the foreign country, ensuring that the taxpayer does not pay tax twice on the same income.

Deadline to file Form 67 in India

According to Central Board of Direct Taxes (CBDT) rules, Form 67 should be filed by a taxpayer on or before the end of the assessment year, if the return of income was filed within the stipulated time under the I-T Act.

Step-by-step procedure to file Form 67

Log in to the E-filing portal: You can log in to the portal of the I-T Department using your credentials.

Navigate to E-file: Once logged in, navigate to the ‘e-File’ menu, select ‘Income Tax Forms’ and choose ‘File Income Tax Forms’. On the next page, select ‘Persons not dependent on any source of income’, Choose Form 67 from the list and the assessment year.

Fill in the details: Enter all necessary information regarding your foreign income and the taxes paid. They include details like the amount of income, type of income, country of tax payment, and the exact amount of tax paid.

Proof of tax payment: You need to provide proof of the tax paid to the foreign authority. This could be a tax payment receipt, a tax deduction certificate from the foreign employer, or any official document that verifies the tax payment.

Also read: Your guide to filing income tax returns for FY 2023-24

Submit the form: After filling out the form and attaching all documents, you can submit the form online through the portal. You can use an Electronic Verification Code (EVC) or a Digital Signature Certificate (DSC) to authenticate and complete the submission.

Documentation requirement

In accordance with Rule 128, the taxpayer is required to furnish the following documents on or before the due date of filing the return:

Statement of foreign income: Details of any income that has been taxed abroad, along with the information on the foreign tax deducted or paid on such income.

Certificate or statement from foreign authority: The document should specify the nature and amount of income earned, tax deducted or paid. This should be issued by the foreign tax authority or the entity responsible for  tax deduction.

Proof of payment: Taxpayers need to furnish a document verifying the tax payments made outside India.

Specific rules for claiming FTC

Rule 128 provides certain clarifications on claiming FTC.

Timing of claim: FTC can be claimed in the year when the corresponding income is offered to tax in India.

Also read: ITR filing 2023-24: Switching tax regimes while filing returns? Here’s what you need to know

Applicability: FTC can be claimed against taxes, surcharge and applicable cess but no adjustment against interest, fees, or penalties.

Eligibility: The FTC is ineligible for disputed foreign taxes.

Coverage: The FTC is also available on the taxes paid under the Minimum Alternate Tax (Section 115JB).

Limitation: The credit claimed should not exceed the lesser of the tax payable on that income in India or the foreign tax actually paid.

Calculation across sources: The FTC should be an aggregate of credits computed separately for each source of income from a specific country.

Currency conversion: The FTC amount should be converted to Indian Rupee using the Telegraphic Transfer Buying Rate as of the last day of the month preceding the month in which the tax was paid or deducted abroad.

In essence, Form 67 is a crucial document that aligns with global taxation principles, ensuring that taxpayers with foreign income are not unduly penalised through double taxation. Properly leveraging this form can lead to significant tax savings and more accurate financial reporting for those navigating multiple tax jurisdictions.