Form 67 - How to Get Foreign Tax Credit & Claiming Process

Mr Navin Mehta is an IT professional who is currently working in the USA. He regularly sends his foreign earnings to his family in India.So, he will first have to pay taxes on his US income as per the US tax laws. Once that income reaches India, it’ll be taxed again as income tax in India is also applicable to the global income. In this scenario, Mr Mehta’s hard-earned income will be taxed twice- once in the USA and then again in India.The Foreign Tax Credit (FTC) is a tax mechanism to tackle this double taxation scenario. By filing Form 67, such Indians can receive a tax credit . Take a look at what this FTC is and how it works-

According to the Indian IT Act , Indian residents who’ve paid taxes on their foreign income in their source countries can claim a tax credit on the foreign taxes against their tax liability in India. In other words, the tax liability would be adjusted as per the tax credit received for reducing their tax liability in India.

Form 67 is the official IT form that should be submitted to the tax department for receiving a tax credit. The form should be submitted on or before the due date for returns filing in India to receive the applicable credit. The tax credit will not be processed if the individual fails to submit Form 67.

Apart from Form 67, the following documents should be uploaded to the official eFiling portal of the tax department for claiming Foreign Tax Credit -

• Statement of foreign income offered to tax and foreign tax paid or deducted on such foreign income
• Statement from the foreign tax authority or person responsible for tax deduction certifying the nature of income and the tax amount paid
• Proof of taxes paid in a foreign country

FTC is an excellent way to reduce your tax liabilities in India if you have income sources in more than one country. Submit Form 67 on or before the ITR due date to avoid delays in receiving the tax credit.You can also consult a tax professional to help you submit Form 67 and receive the appropriate tax credit.

In order to claim the foreign tax credit, the taxpayers have to fill out and submit Form 67. Only after submitting Form 67, the taxpayer can file income tax returns to receive the credit. Form 67 can be filled out online through the e-filling portal by selecting the form under the “E-file-Prepare and submit online forms (Other than ITR)” section of the portal. After filling out the form, a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is required to submit the form. The taxpayer can then file ITR.

In order to compute the foreign tax credit that a taxpayer can claim, the following points have to be considered.

• The foreign tax credit will be the lesser of the tax payable as per income tax regulations in India or the tax paid in the foreign country.
• The foreign tax credit can only be taken against the income tax, surcharge and cess payable under the income tax regulations. Interest, fees and penalties cannot be applied to the foreign tax credits.
• The conversion rate on the foreign tax paid will be the Telegraphic Transfer Buying Rate on the last day of the month immediately preceding the month in which the foreign tax was paid or deducted.

Based on these considerations, the amount of foreign tax credit that a taxpayer can claim will be ascertained.

In order to claim the foreign tax credit in India, the taxpayer has to fill out Form 67 and submit it before filing income tax returns in India. In India, the foreign tax credit is subject to the following conditions:

• The foreign tax credit will be the lesser of the tax payable as per income tax regulations in India or the tax paid in the foreign country.
• The foreign tax credit can only be taken against the income tax, surcharge and cess payable under the income tax regulations. Interest, fees and penalties cannot be applied to the foreign tax credits.
• If the foreign tax paid is disputed, the foreign tax credit will not be allowed.
• The conversion rate on the foreign tax paid will be the Telegraphic Transfer Buying Rate on the last day of the month immediately preceding the month in which the foreign tax was paid or deducted.
• Foreign tax credit needs to be computed separately for each source of income and then aggregated after computed tax payable under each head.
• The foreign tax credit can only be claimed in the year in which the income has been subjected to tax in India.

The foreign tax credit is a refund of the tax paid in a foreign country as well as in the home country. Subject to certain conditions and the existing DTAA regulations with the other country, if a taxpayer has paid tax in a foreign country and in India, the taxpayer can claim a foreign tax credit to avoid double taxation.Form 67 has to be filled and submitted by the taxpayer before filing the annual income tax returns to claim the foreign tax credit.If the foreign tax is refunded to the taxpayer due to a loss carried backwards as per foreign tax regulations. Form 67 will be filled and submitted in this case as well.

If a taxpayer had paid tax in a foreign country, the taxpayer could also claim the foreign tax credit in India to avoid being charged double tax. The maximum foreign tax credit that can be claimed is the lower of the actual foreign tax credit or the income tax payable under the Indian income tax regulations.

As per rule 128 of the Income Tax Rules of India, the taxpayer has to file the following documents in order to claim the foreign tax credit.

• Form 67 contains details of the foreign tax paid and the foreign income on which such tax was paid.
• A certificate from the tax authority of the foreign country, personal who deducted the tax and signed by the taxpayer, specifying the nature of the foreign income and the foreign tax deducted on it.
• Any other proof of actual payment of tax outside India.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.