How do I claim foreign tax credit using Form 67 under DTAA

Question

I paid tax abroad on foreign income that is also taxable in India, and I want to know how to claim credit for the foreign tax paid. I would rather settle this without going to court if the law allows it, but I need to know my rights before I sign anything. Please tell me what to do first and what document to keep.

MyVakeel Legal Desk · Accepted Answer

Under Indian law, Income-tax Act, 1961, Section 90 is the starting point for this tax law question. What follows is the position in substance, together with the steps that usually make the difference in practice.

Section 90 of the Income-tax Act, 1961 empowers the government to enter into Double Taxation Avoidance Agreements, and where such a treaty exists, a resident taxpayer can claim credit for tax paid in the foreign country on income also taxed in India, subject to the treaty's relief method.

Rule 128 of the Income-tax Rules, 1962 requires the foreign tax credit to be claimed by filing Form 67 electronically, which must be furnished on or before the end of the relevant assessment year, and in most cases before filing the return of income for that year.

The credit allowed is the lower of the tax actually paid or payable in the foreign country and the tax payable in India on the same income calculated at the average Indian tax rate, so the credit cannot exceed the Indian tax attributable to that foreign income.

Foreign tax credit is denied for tax that is disputed and under litigation abroad unless proof of payment and a certificate of the outcome are furnished, and credit for tax deducted in a country without a DTAA is still available under Section 91 on a unilateral basis, subject to similar limits.

Failure to file Form 67 within the prescribed timeline has in several tribunal rulings been treated as a procedural lapse rather than a bar to the substantive credit, but taxpayers should not rely on this and should file it on time to avoid a dispute.

What to do next: 1) Collect foreign tax payment certificates or a certificate from the foreign tax authority; 2) Compute the eligible credit as the lower of foreign tax paid and average Indian tax on that income; 3) File Form 67 electronically before filing the income tax return; 4) Claim the credit in the relevant schedule of the income tax return.

If you are unsure whether your facts fall inside Income-tax Act, 1961, Section 90, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in tax law.