Learn how Indian residents can claim Foreign Tax Credit (FTC) to avoid double taxation on global income. Covers eligibility, DTAA rules, Form 67 process, refund adjustments, and official documentation requirements.
📘 Foreign Tax Credit (FTC) for Indian Residents:
Your Ultimate Guide 🌍 Working or investing abroad? You might be paying taxes in both countries! Thankfully, India offers a Foreign Tax Credit (FTC) system to help you avoid being taxed twice. Let’s break it down in a simple Q&A style.
Q1. What is Foreign Tax Credit (FTC) and why does it matter?
FTC is a credit Indian residents can claim for taxes paid on foreign income, so the same income isn’t taxed twice—once abroad and once in India. Example: Riya, an Indian consultant, earns $10,000 from a US client and pays $1,000 tax in the US. She can claim a credit of up to ₹83,000 (approx., depending on exchange rate) against her Indian tax liability on that $10,000.
Q2. Under which sections can FTC be claimed? Indian residents can claim FTC under:
1. Section 90 / 90A – If India has a Double Taxation Avoidance Agreement (DTAA) with the foreign country.
2. Section 91 – If no DTAA exists. Key Insight: Always check if a DTAA exists before filing. It offers better relief mechanisms and clarity on taxing rights.
Q3. What kind of taxes qualify for FTC?
Only income tax, surcharge, and cess paid abroad qualify. ❌ No FTC for: Interest, Penalty, Fees, Disputed taxes (until resolved). Example: Tax paid to the US IRS qualifies for FTC. But state taxes or social security paid in the US do not qualify.
Q4. What if foreign tax is under dispute?
You can’t claim FTC immediately. But once the dispute is resolved and tax is paid: ✓Submit evidence of dispute settlement, ✓show proof of tax payment, ✓give an undertaking not to claim a refund later. ✓ Claim FTC within 6 months from the end of the month the dispute is resolved.
Q5. What happens if you get a foreign tax refund after claiming FTC in India?
You must revise your Indian ITR and Form 67. 🛑 Failing to do so may lead to over-claim of FTC, double non-taxation, and IT Department notices. Example: Priya claimed FTC for $800 tax in Canada. She later got a refund of $200. She must revise her return and Form 67 to reflect FTC of only $600.
Q6. Which method does India follow to avoid double taxation under DTAAs?
India follows Article 23B of the OECD Model Convention, i.e., the Credit Method – meaning tax the income but give credit for foreign tax paid. ✅ Better than exemption method because it lets India still tax global income but avoids double taxation through FTC.
Q7. How do I claim FTC in India?
(Official process) You must file Form 67 electronically through the Income Tax e-Filing portal before filing your ITR. You will need: details of foreign income, amount of foreign tax paid, proof of tax payment (challan/certificate), and tax residency proof if claiming DTAA benefits.
Form 67 User Manual | Income Tax Department https://share.google/KIp3fKPRgwX645cVD
Q8. What documents should I keep for FTC claims?
Keep a foreign tax deduction certificate from the payer or tax authority, proof of tax payment (e.g., challan, bank statement), and DTAA-related documents if applicable. You may be asked to submit these during assessment.
Q9. Is FTC available on income exempt in India?
No. If income is exempt under Indian tax law, you cannot claim FTC for tax paid abroad on that income. Example: Certain agricultural income earned abroad may be exempt in India, so no FTC will be allowed.
Q10. Can I claim FTC for foreign taxes paid on dividend income?
Yes, if dividend income is taxable in India and tax has been paid abroad on it, subject to DTAA provisions and limits under Rule 128.
Q11. What is the limit of FTC I can claim?
FTC is limited to the lower of: (a) tax payable in India on such income, or (b) the actual foreign tax paid.
Q12. Can I carry forward unused FTC to next year?
No. FTC is only available for the year in which the foreign income is offered to tax in India.
✅ Final Takeaways: Claim timely – File Form 67 with your ITR | Keep proofs – Foreign tax challan, certificate, or acknowledgment | Know limits – FTC limited to lower of Indian or foreign tax | Review DTAAs – Better terms than unilateral relief | Revise if needed – Refund = revise ITR + Form 67.
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