Claiming Foreign Tax Credit in India: Step-by-Step Guide to Form 67 Compliance

Residents earning income in India can reduce their tax burden by claiming Foreign Tax Credit (FTC) through Form 67. India Briefing offers a comprehensive guide on Form 67, covering eligibility, filing procedures, and best practices to ensure compliance and optimize tax benefits.

Resident taxpayers in India earning foreign income and paying taxes abroad must submit Form 67 to claim Foreign Tax Credit (FTC) and offset foreign taxes against their Indian tax liabilities. Under Rule 128 of India’s Income Tax Rules, 1962, eligible taxpayers must meet specific conditions to claim FTC. Failing to file Form 67 before the income tax return (ITR) due date will result in the loss of tax credits.

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We provide you with all the details of Form 67 filing requirements and best practices for global businesses and tax professionals. By following these steps, corporate entities can ensure compliance with Indian tax laws and maximize their FTC benefits.

Foreign source of income

In India, foreign source income refers to earnings such as dividends, interest, royalties, and fees for technical services received from outside India. For an income to be considered foreign, the ultimate beneficiary must conduct the activity outside India. Services may be provided remotely or on-site, but they must be used by a recipient whose activity is based outside India. Also, the first receipt of income must occur outside India; if received directly in India, it becomes taxable as Indian income.

Tax treatment based on residential status

The taxability of foreign income depends on the taxpayer’s residential status:

• Resident and Ordinarily Resident (ROR): Global income, including foreign earnings, is taxable in India and subject to applicable income tax slabs. Relief may be available under Double Taxation Avoidance Agreements (DTAA).
• Resident but Not Ordinarily Resident (RNOR): Foreign income is generally not taxable unless received in India or linked to an Indian business or profession.
• Non-Resident (NR): Taxable only on income earned or accrued in India. Form 67 is not applicable to non-residents since they do not claim FTC in India.

Eligibility and due date

Resident entities can claim FTC by filing Form 67 under the following conditions:

• Foreign tax must be paid on income that is subject to taxation in India.
• The FTC claim must be made in the same assessment year in which the income is offered to be taxed in India. Filing Form 67 after the end of the assessment year makes one ineligible to claim the credit;
• If the tax is disputed in the foreign jurisdiction, FTC cannot be claimed until resolution;
• Form 67 must be filed before the ITR due date, which is July 31 for individuals and non-audit cases and October 31 for audited entities; and
• For updated returns under Section 139(8A), Form 67 must be filed before the updated return deadline.

Structure of Form 67

India’s Form 67 is divided into four key sections, each capturing crucial tax details:

1. Applicant information

• Taxpayer details such as name, Permanent Account Number (PAN), and contact information;
• Assessment Year (AY) in which the FTC claim is made; and
• Details of foreign income and foreign tax paid.

2. Foreign tax refund disclosure

• If any foreign tax is later refunded, businesses must adjust FTC claims accordingly.
• A revised Form 67 must be submitted if a foreign tax refund affects prior claims.

3. Verification

• Taxpayer declaration confirming the accuracy of details.
• Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) authentication.

Documents required for filing Form 67

Accurate documentation is crucial for claiming the FTC and avoiding rejection. Businesses claiming FTC in India must provide the following supporting documents when filing Form 67:

• Certificate from foreign tax authorities: An official certificate issued by the foreign tax authority confirming the tax paid.
• Proof of foreign tax payment: Self-attested copies of tax payment receipts, bank statements, or challans reflecting foreign tax payments.
• Tax return filed in foreign jurisdiction: If applicable, a copy of the income tax return filed in the foreign country.
• Foreign employer certificate (if applicable): In the case of salary income, a certificate from the foreign employer specifying the tax deducted at source.

Example of FTC calculation

An Indian company earning US$100,000 from the U.S. and paying US$15,000 in U.S. taxes can claim FTC under Form 67, provided the income is also taxable in India. The eligible FTC is the lower of:

1. 1. Foreign tax paid (foreign earning converted to INR value), or
   2. Indian tax payable on the same income.

• Currency conversion: US$15,000 foreign tax must be converted into INR using the Telegraphic Transfer Buying Rate (TTBR) of the last day of the preceding month. TTBR refers to the exchange rate used by banks for converting foreign currency into INR when processing international transactions. For example, the converted amount comes to INR 1.3 million.
• Final credit claim: If the converted FTC amount (INR 1.3 million) is lower than the Indian tax liability (INR 2.5 million), the company can claim INR 1.3 million as FTC, not the full Indian tax liability amount.

Step-by-step filing process for Form 67

Businesses in India can e-file Form 67 by following these steps:

1. Log in to the income tax portal using PAN credentials. Click here: incometax.gov.in
2. Navigate to the e-file section on the dashboard.
3. Select income tax forms from the available options.
4. Choose File Income Tax Forms from the dropdown menu.
5. Locate and select Form 67—Double Taxation Relief.
6. Choose the relevant AY for which the claim is being made.
7. Enter details of foreign income and foreign tax paid.
8. Upload all supporting documents, including foreign tax payment proof.
9. Verify the submission using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
10. Submit the form and download the acknowledgment receipt for records.

Common errors to avoid for businesses while filing Form 67

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Manage Company Tax and Compliance across Multiple Jurisdictions

Many businesses face FTC rejection due to common filing errors. These include:

• Incorrect currency conversion: Always use TTBR rates as prescribed by the Reserve Bank of India (RBI);
• Delayed filing: Form 67 must be submitted before the ITR due date;
• Insufficient documentation: Ensure tax receipts, foreign authority certificates, and self-attested proofs are uploaded;
• Mismatch with ITR data: FTC details in Form 67 must match the figures reported in the tax return;
• Failure to report foreign tax refunds: Any refund received from foreign jurisdictions must be reported while filing the form to avoid penalties; and
• Not maintaining records of foreign tax payments can lead to compliance issues during audits.

Compliance best practices

Resident taxpayers with foreign income can simplify Form 67 compliance by:

• Tracking foreign tax payments and maintaining accurate records;
• Consulting tax professionals to navigate complex cross-border tax scenarios;
• Using automated tax software for precise calculations and regulatory updates;
• Monitoring Central Board of Direct Taxes (CBDT) notifications to stay aligned with evolving FTC rules;
• Filing Form 67 well before the deadline to avoid last-minute system errors; and
• Ensuring consistency between Form 67 and ITR filings to prevent disputes.

Key takeaway

By following accurate documentation practices, timely filing, and compliance best practices, businesses can ensure smooth tax credit claims.

(US$1 = INR 86.83)

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