Foreign Tax Credit and how to claim it using form 67
An overview of the Foreign Tax Credit
In this post, we will explain the Foreign Tax Credit and how taxpayers can use Form 67 of the Income Tax to claim it.
Let’s take a closer look at these sections:
What is Foreign Tax Credit?
Imagine a person resides in Country A and earns some money from Country B. Country B may deduct taxes from the funds. However, Country A also wants to tax all of their income, including the money they earned in Country B. This means you’re getting taxed twice : once in Country B and again in Country A.
To prevent this double taxation, many countries have something called the Foreign Tax Credit (FTC). With the FTC, if you pay income tax in a foreign country (like Country B), you can use that amount to lower the tax you owe in your own country (Country A). This way, you don’t end up paying taxes twice on the same money.
Foreign tax credit in India
In India, there are two sections, 90 and 91, in the tax laws that talk about Foreign Tax Credit (FTC). Section 90 applies when India has a Double Taxation Avoidance Agreement (DTAA) with another country, while Section 91 applies when there is no DTAA.
If an Indian resident pays taxes in a foreign country, they can use these sections to claim a credit and reduce the amount of tax they owe in India.
Documents required to claim FTC
According to Rule 128, in order to claim FTC, the taxpayer must file the following documentation on or before the due date of the return:
- Form No. 67
- It contains the statement of income from a country or specified territory outside India and foreign tax credit.
- Certificate or statement from
- The tax authority of the foreign country or from the person responsible for the tax deduction.
- Deduction proof
- When the tax is deducted, it should be noted in Form 67 with other required documents.
Steps for Filling and submission of Form 67
1: Log in to the Income Tax e-Filing system with your user ID and password.
2: On the ‘Dashboard,’ click ‘e-File,’ then ‘Income Tax Forms,’ then ‘File Income Tax Forms’.
3: On the next screen, click ‘Form 67’.
4: Select the ‘Assessment Year (AY)’ and press the ‘Continue’ button.
5: Click ‘Let’s Get Started’ on the instructions page.
6: Form 67 will be shown. Fill in the essential information and press the ‘Preview’ button.
7: Verify the details and click ‘Proceed to e-Verify’.
8: To submit the form, click ‘Yes’ on the confirmation message.
9: You’ll be directed to the e-verify page. After successful e-verification, a success message, transaction ID, and acknowledgement number will be presented.
Keep the transaction ID and acknowledgement for future reference. You will also receive a confirmation email to the email address you registered with the e-Filing site.
With that, we conclude our post on Foreign Tax Credit. Please leave your comments and ideas in the comments section below.
FAQ
1.What form should be completed to request a foreign tax credit?
Ans : To claim relief from the foreign tax credit, each resident taxpayer must complete and submit Form 67. To take advantage of the FTC, you must provide correct and complete information about your overseas income.
2.What is Income Tax Rule 128?
Ans : According to Rule 128, any Indian resident who pays tax outside the Indian territory on income generated outside India is entitled to a credit for the tax paid in the resident nation.
3.How much foreign income is exempt from taxation under the Indian Income Tax Act?
Ans : According to the Income Tax Act of 1961, any income up to INR 2,50,000 is free from income tax. Foreign income is taxed at the relevant slab rates since it is considered as domestic income.
