Form 67: How to Claim Foreign Tax Credit in India

The foreign tax credit (FTC) is a method by which taxpayers can avoid paying taxes twice on the same income in two or more countries. To understand this better, let's imagine a scenario in which a taxpayer is a resident of India (the Residence state). However, he earns income from the United States (source state). The U.S. deducts some tax at source on that income. Since India follows a system of taxing global income; the same income is also taxed in India. This results in double taxation: first in the resident state (India) and then in the source state (the U.S.).

To address this, many countries, including India, permit their taxpayers to claim credit for taxes already paid in a foreign land. This credit effectively reduces the overall tax liability in the resident country, ensuring that income isn’t taxed twice on the same earnings.

In India, foreign income refers to earnings such as dividends, fees for services rendered abroad, or royalties received from a foreign country. An earning is classified as foreign income only when the beneficiary is conducting their services outside India. The first receipt of income must occur outside India and become taxable as Indian income. 

However, according to the Sections 90 and 91 of the Income Tax Act, taxpayers are relieved from double taxation because of foreign tax credit (FTC). Section 90 is applicable when India has a Double Taxation Avoidance Agreement (DTAA) with another country. If this agreement is in place and includes provisions for the Foreign Tax Credit (FTC), the taxpayer is qualified to claim a credit for the taxes paid in a foreign land. 

Section 91, on the other hand, applies when there is no Double Taxation Avoidance Agreement (DTAA) signed between India and the country in which the tax is paid. Under such circumstances, if the taxpayer is an Indian and has paid taxes in a foreign land, they can claim a credit while filing for taxes in India. 

Rule 128 was introduced in the Income Tax Rules to streamline the process of claiming FTC and includes the following provisions:

1. Timing: FTC can be claimed in the year in which the foreign income is offered or assessed to tax in India. 

2. MAT applicability: The FTC is available against tax liability under Section 115JB, i.e., Minimum Alternate Tax (MAT). If a company has paid tax under MAT, and it has already paid a foreign tax on its income, it can claim a credit for that tax against MAT in India.

3. Currency conversion: The foreign tax paid must be converted to Indian rupees using the telegraphic transfer buying rate (TTBR) on the last day of the month immediately before the month in which the foreign tax was paid. 

4. Disputed tax: The FTC cannot be claimed for foreign taxes that are disputed in the foreign country unless the dispute is resolved. 

5. Eligible taxes: FTC can be claimed only against income tax, surcharge, or cess payable under Indian law. It cannot be argued against interest, penalties, or fees.

Form 67 is a compulsory document that the taxpayer must furnish to claim a foreign tax credit (FTC) in India. Form 67 of the Income Tax Act serves as a supporting statement for claiming a tax credit already paid in a foreign country against the tax liability in India. 

According to rule 128(9) of the income tax rules, Form 67 must be filled out before submitting the income tax return, also termed as the Original Return under Section 139(1), or the Belated Return under Section 139(4).  

Under section 139 (1), an original return is an income tax return filed under the prescribed due date. In contrast, the Belated Return, under Section 139(4), is filed past the due date but before the end of the assessment year. For example, in the assessment year 2024-25, if a taxpayer wants to claim FTC, form 67 must be submitted on or before 31 December 2025.  

Form 67 of the Income Tax Act is divided into four sections detailing specific requirements for claiming Foreign Tax Credit (FTC) in India. The four sections of Form 67 are: 

1. Part A:  Part A consists of basic information like name, PAN or aadhar details, assessment year, and details of the foreign tax claimed. 

2. Part B: This part contains details of the refund of foreign tax as a result of carrying backward losses and the disputed foreign tax. 

3. Verification: This section entails a self-declaration verification form by the taxpayer as per the Income Tax Rules (1961).

4. Attachments: In this section, the taxpayer has to attach a copy of the certificate or proof of payment showing a deduction of foreign tax. 

To claim the foreign tax credit, proper documentation is essential. Inaccurate information could result in delays in granting credit. Taxpayers must submit the following documents while filing for Form 67:

1. Certificate from foreign tax authorities: An official certificate that is issued by the foreign tax authority that confirms the amount of tax paid by the taxpayer.

2. Proof of foreign tax payment: Self-attested copies of documents like

• Challans 
• Tax payment receipts 
• Bank statements showing deduction of foreign tax

3. Foreign employer certificate: For a salaried individual, a certificate issued by the foreign employer specifying:

• Tax deducted at the source.
• Date and amount of tax deducted 
• Income earned

Submitting Form 67 is a crucial step in claiming the Foreign Tax Credit (FTC) as per Indian tax laws. Here’s how you can easily fill it out and submit it online through the income tax e-filing portal:

1. Visit the income tax portal: Login to income tax portal using your PAN details.

2. Go to the e-file section: From the dashboard, navigate to the 'e-file' menu.

3. Select income tax forms: Under the e-File section, choose 'Income Tax Forms' from the dropdown options.

4. Choose file income tax forms: Click on 'File Income Tax Forms' to proceed with form selection

5. Search for and select form 67: Locate form 67 – Double Taxation Relief and click to open it.

6. Select assessment year: Choose the relevant Assessment Year for which you are claiming FTC.

7. Enter required details: Fill in all necessary information, such as:

• Details of foreign income
• Amount of foreign tax paid
• Name of the foreign country
• Nature and source of income

8. Upload supporting documents: Attach all required documents, including:

• Proof of foreign tax payment
• Foreign tax authority certificate
• Foreign tax return (if applicable)

9. Verify submission: Use a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC) to verify the form.

10. Submit and save acknowledgment: Once submitted, download the acknowledgment receipt for your records.

Successfully completing form 67 is essential to claim FTC under tax regulations in India, but even a minor error could result in delayed processing. Taxpayers should watch out for these errors:

1. Late submission of Form 67: Form 67 must be filed before the due date of the Income Tax Return (original or belated). Filing it post the ITR deadline may reject your FTC claim.

2. Inconsistency between ITR Data and Form 67: The foreign income and tax details provided in Form 67 must correspond with what's declared in your Income Tax Return (ITR). 

3. Incorrect currency conversion: Convert the foreign tax paid using the Telegraphic Transfer Buying Rate (TTBR) issued by the RBI on the last day of the month before the tax payment. Applying approximate rates may lead to inaccurate FTC claims.

4. Lack of proper documents: Not providing complete and valid documents, such as proof of foreign tax payment receipts, tax authority certificates, or self-attested proofs, can lead to rejection of FTC. Ensure all supporting documents are clear and valid for FTC approval.

5. Failure to declare foreign tax refunds:  Any refunds received on the foreign income must be reported in form 67. Failure to do so could result in penalties

Claiming foreign tax credit (FTC) is an essential step for avoiding double taxation on global income. Filing Form 67 accurately and on time, along with the correct documentation and currency conversion, ensures a seamless tax compliance experience. 

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