Resident taxpayers who earn income from foreign sources often face the issue of double taxation—being taxed both in the country of origin and in their home country. To alleviate this, the Indian Income Tax Act provides for a Foreign Tax Credit (FTC), which can be claimed by filing Form 67 with the Income Tax Department. This form plays a vital role in helping taxpayers claim credit for taxes paid abroad, ensuring that they are not taxed twice on the same income. Additionally, Form 67 is required in situations where current-year losses are carried backward, resulting in a refund of foreign taxes previously credited. In this article, we will provide a comprehensive overview of Form 67, its significance, and the procedure for filing it to avail the FTC.
Form 67: Overview, Significance, and Filing Process for Foreign Tax Credit
What is the Foreign Tax Credit (FTC) in Income Tax?
The Foreign Tax Credit (FTC) is a provision that helps residents avoid double taxation when they earn income from foreign sources. Double taxation occurs when both the source country (where the income is generated) and the resident country (where the taxpayer resides) tax the same income. This can result in a significantly higher tax burden.
To mitigate this, India allows residents to claim a Foreign Tax Credit under the Income Tax Act. This allows individuals to offset taxes paid in the source country against their Indian tax liability, ensuring they aren’t taxed twice on the same income. The credit is generally claimed through applicable Double Taxation Avoidance Agreements (DTAAs) and by submitting Form 67 with the Income Tax Department.
Example:
Imagine you’re an Indian resident earning €3,000 in royalty income from a company based in Germany. As per the India-Germany DTAA, Germany withholds 10% tax at source, amounting to €300, and you receive €2,700. When filing your Income Tax Return (ITR) in India, you report the entire €3,000 (around ₹2,70,000 assuming €1 = ₹90) as part of your global income.
Here’s how your Indian tax liability and FTC would be calculated:
| Particulars | Amount (INR) |
|---|---|
| Royalty Income (€3,000 × ₹90) | ₹2,70,000 |
| Tax Liability in India @31.2% | ₹84,240 |
| Less: Relief under Section 90 (FTC) (€300 × ₹90) | ₹27,000 |
| Net Tax Payable in India | ₹57,240 |
This example illustrates how the FTC ensures you pay only the difference between the domestic tax liability and the tax already paid abroad, thus avoiding double taxation
Sections Involved in Foreign Tax Credit in India
The Indian Income Tax Act has specific provisions that allow residents to claim FTC for taxes paid in foreign countries. The two main sections that govern the FTC are:
Section 90:
This section applies when India has a Double Taxation Avoidance Agreement (DTAA) with the country where the income is sourced. It allows the taxpayer to claim FTC in accordance with the terms of the DTAA. The credit is limited to the lower of the tax paid in the foreign country or the Indian tax liability on that income. This relief is called bilateral relief.
Section 91:
This section applies when there is no DTAA between India and the foreign country. It allows Indian residents to claim FTC to prevent double taxation, even without an agreement. This is referred to as unilateral relief and is provided only if the income is taxed twice and the taxpayer is an Indian resident
Rules to Avail the FTC in India
To streamline the FTC claiming process, the Indian government introduced Rule 128 under the Income Tax Rules, effective from April 1, 2017. Here are the key rules for claiming FTC:
Year of Claim: FTC can only be claimed in the same year in which the corresponding foreign income is offered for tax or assessed in India.
Eligible Components: The FTC is only allowed for tax, surcharge, and cess payable under Indian tax laws. It cannot be claimed for interest, fees, or penalties.
Disputed Taxes: FTC is not allowed for foreign tax that is in dispute. The credit can only be claimed if the foreign tax has been paid and is not under challenge.
Availability under MAT: FTC is also available for taxes paid under Section 115JB (Minimum Alternate Tax), offering relief for companies subject to MAT.
Computation by Source and Country: FTC is computed separately for each source of income and each country from which the income is earned, and then the credits are aggregated.
Limit of Credit: The FTC allowed is the lower of:
The Indian tax payable on the foreign income, or
The foreign tax paid on that income.
Conversion Rate: Foreign taxes paid must be converted to Indian currency using the Telegraphic Transfer Buying Rate (TTBR) of the last day of the month preceding the month in which the tax was paid or deducted
Documents Required to Claim Foreign Tax Credit (FTC)
As per Rule 128 of the Income Tax Rules, taxpayers must provide certain documents when claiming the Foreign Tax Credit. These documents must be submitted on or before the due date for filing the Income Tax Return (ITR).
Form 67: A mandatory statement containing details such as:
The foreign income that has been offered for tax in India
The amount of foreign tax paid or deducted on that income.
Certificate or Statement of Tax Paid: This document specifies the nature of the income and the amount of foreign tax paid. It can be obtained from:
The tax authority of the foreign country, or
The person responsible for deducting the tax, or
Self-certification by the taxpayer.
Proof of Payment of Foreign Tax: Evidence or receipts that show the foreign tax has been paid by the taxpayer in the foreign country
Form 67 in Income Tax - Brief Overview
Form 67 is a mandatory document that must be submitted by a resident taxpayer to claim credit for foreign taxes paid on income earned outside India. The purpose of this form is to enable taxpayers to claim the Foreign Tax Credit (FTC) under the Income Tax Act. It must be filed on or before the due date for filing the Income Tax Return, as prescribed under Section 139(1) of the Income Tax Act. Form 67 is also required in situations where the carry-back of current-year losses leads to a refund of foreign tax previously credited in earlier assessment years.
Who Needs to File Form 67?
Any resident taxpayer who has paid foreign tax—either through deduction or otherwise—on income earned abroad and wishes to claim the Foreign Tax Credit (FTC) in India must file Form 67. This includes individuals and entities seeking to offset the foreign tax paid against their domestic tax liability.
Contents of Form 67
Form 67 is divided into four key sections, each serving a specific purpose for the FTC claim:
Part A: Basic Taxpayer Information
This section captures essential taxpayer details, such as:
Name, PAN or Aadhaar Number, and Address
The relevant Assessment Year
Receipt details of foreign income
The total amount of Foreign Tax Credit (FTC) claimed for the relevant year
Part B: Foreign Tax Refund and Disputed Taxes
This section requires disclosure of:
Any foreign tax refund arising due to the carry-back of losses from previous years
Details on disputed foreign taxes, if applicable
Verification
This section includes a self-declaration statement under Rule 128 of the Income Tax Rules, affirming that all the information provided in Form 67 is accurate and complete.
Attachments
In this section, the taxpayer must attach the following documents:
A certificate or statement detailing the foreign tax paid or deducted
Proof of payment or deduction of foreign tax
How to File Form 67 and Claim Foreign Tax Credit
Form 67 must be submitted online via the Income Tax Department’s e-Filing portal. Follow the steps outlined below to file Form 67 and claim your Foreign Tax Credit (FTC):
Step 1: Log in to the e-Filing Portal
Step 2: Navigate to e-File Section
Step 3: Locate Form 67
Step 4: Choose the Correct Assessment Year
Step 5: Review the Instructions and Click “Let’s Get Started”
Step 6: Complete Form 67 Details
Step 7: Review and Confirm
Step 8: Confirm and Proceed
Step 9: e-Verification Confirmation
Due Date for Filing Form 67
Form 67 must be submitted on or before the end of the relevant assessment year if the income tax return is filed under Section 139(1) (original) or Section 139(4) (belated). For updated returns under Section 139(8A), Form 67 should be filed by the date of submitting the updated return. To claim relief under Section 90, Form 67 must be filed before the end of the assessment year. Failure to do so may result in the disallowance of the Foreign Tax Credit (FTC) claim.
Example: For foreign income earned in FY 2023–24 (AY 2024–25), Form 67 must be filed by March 31, 2025.
About the Author
Muskan
Muskan is an expert content writer with a focus on business registration, tax regulations, trademark laws, and company compliance. His informative articles provide clear, practical guidance to help businesses navigate and address complex legal and regulatory issues effectively
