Form 67: How to Claim Foreign Tax Credit?

What is a Foreign Tax Credit?

Foreign tax credit is a mechanism designed to alleviate the burden of double taxation for taxpayers earning income in two different countries. If a taxpayer is a resident of Country A and receives income from Country B, both countries may impose taxes on that income.

To prevent double taxation, the Government of India offers foreign tax credits. This provision allows the taxpayer to claim a deduction or credit for the taxes paid in the source state from their total tax liability in the resident state.

Availability of the foreign tax credit allows the taxpayer to avoid being taxed twice on the same income, ensuring a fair and equitable treatment of cross-border income. 
 

Under Section 90 of the Indian Income Tax Act, 1961, India has entered into a Double Taxation Avoidance Agreement (DTAA) with other countries. According to this agreement, residents of India can claim foreign tax credits as per the provisions outlined in the respective DTAA.
 

Additionally, Section 91 of the Income Tax Act, 1961, applies to scenarios where India does not have a DTAA with the country where the income is earned by a taxpayer. In this case, if a taxpayer who is a resident of India has paid taxes outside the country, they can claim a credit for such foreign taxes paid against their tax payable in India. 
 

However, taxpayers must adhere to some rules established under Rule 128, effective from April 1, 2017, as explained below:
 

• Foreign tax credit is granted in the year when the income linked to such tax is declared or evaluated for taxation in India.
• This credit is applicable against the sum of tax, surcharge, and cess owed under Indian tax regulations, excluding any interest, fees, or penalties. However, it cannot be claimed if the foreign tax is in dispute.
• The provision extends to taxes payable under Section 115JB.
• The total foreign tax credit is a combination of credits computed separately for each income source from a specific country.
• The credit amount is determined by comparing the tax payable under Indian tax laws with the foreign tax paid, with the lower amount considered.
• Currency conversion for foreign tax payment is based on the telegraphic transfer buying rate on the last day of the month preceding the month in which the tax was paid or deducted.

What is Foreign Tax Credit Claim Form 67 of the Income Tax Act, 1961?

Form 67, a foreign tax credit form under the Income Tax Act, 1961, is a vital document for residents seeking to claim a foreign tax credit. This form must be submitted before the due date of filing Income Tax Returns (ITR).

Residents can utilise Form 67 to claim credit for taxes paid in a foreign country to ensure that they are not subject to double taxation. Form 67 is also required if the carry backwards of losses in the current year results in a refund of foreign tax for which credit has been claimed in any previous years. 
 

It is imperative to furnish Form 67 on or before the due date of filing the original ITR under Section 139(1).

How to File the Foreign Tax Credit Form 67?

The Central Board of Direct Taxes (CBDT) has established a streamlined procedure for filing Form 67 through notification no. 9/2017, dated September 19, 2017. Here is a step-by-step guide to the filing process:
 

• Taxpayers can find the form on the e-filing portal of the Income Tax Department.
• Fill out the form on the portal and submit it online.
• Once Form 67 income tax online filing is complete, taxpayers need to verify it using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).

Documents Required for Claiming Foreign Tax Credit

According to Rule 128, taxpayers need to furnish the following documents to claim foreign tax credit. These documents should be submitted on or before the due date of filing the return: 
 

• Taxpayers are required to provide a comprehensive disclosure of their foreign income that is subject to taxation. This involves the nature of the income and the amount of foreign tax deducted or paid on the mentioned income. 
• Individuals must submit a certificate or statement that outlines the nature of the income and the corresponding amount of tax deducted or paid by the taxpayer. It can be acquired either from the tax authority of the foreign country or the entity responsible for tax deductions. The statement must bear the signature of the taxpayer.
• Taxpayers need proof of payment of taxes outside India as evidence of the actual payment of taxes outside India.

Wrapping up

Using Form 67 foreign tax credit can help taxpayers lower tax liabilities drastically. The form plays a crucial role in income tax filing for NRIs and prevents the unnecessary burden of being taxed twice on the same income earned in a foreign country.