How To File Form 67 To Claim Foreign Tax Credit ?

When you pay income tax to a foreign government, it can be claimed as a credit against your tax liability in India. You can use the option of foreign tax credit in India to enjoy this benefit.

Here some of the key benefits of ELSS:

What Is Foreign Tax Credit (FTC)?

In India, an individual’s taxability depends on their residential status and source of income. Not Ordinarily Residents (NOR) and Non-Resident Indians (NRI) are taxed on the income they receive in India. But residents of India and Ordinarily Residents (ROR) are taxed on their income outside the country.

By definition, FTC is a non-refundable tax credit for income tax payments made to a foreign government as a result of foreign income tax withholdings. The residence state deducts it from the taxpayer’s total tax liability in their home country.

FTC involves two different states—the residence state, where the taxpayer is originally from, and the source state, the new country, where the taxpayer is working and receiving an income.

Without FTC, the taxpayer would have their income taxed in the source state. Plus, they would also be taxed on their global income in the residence state. Many countries have signed the Double Tax Avoidance Agreement (DTAA) to addresses this issue of double taxation.

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The Concept Of FTC In India

FTC in India is mentioned in Sections 90 and 91 of the Income Tax Act. These sections allow Indian residents to claim a credit of foreign taxes paid by a taxpayer against their total tax liability in India. Section 90 deals with the claiming of FTC in case of countries with which India has inked the DTAA. On the other hand, Section 91 deals with the same in all other cases.

In 2016, Rule 128 was introduced to remove any ambiguities in this regard. It has come into effect since 1 April 2017. Here are the specifics for claiming FTC under Rule 128:

• FTC can be claimed in the year in which the taxpayer’s income corresponding to the taxes is offered or assessed to be taxed in India
• FTC will be available against the tax amount, surcharge, and the cess payable under Indian tax laws. But it is not available against any interest, fees, or penalty
• If the foreign tax is disputed, FTC would not be available
• FTC will be the total of all amounts of credit calculated separately for each income source in a specific country
• FTC has to be the lesser amount between the total foreign tax paid and the tax payable on such income under Indian tax laws
• FTC is also available on the tax payable under Section 115JB (minimum alternate tax)
• FTC will be determined by the currency conversion during the foreign tax payment at the telegraphic transfer buying rate on the last day of the month, immediately preceding the month in which the tax was deducted or paid

Related: Tax Planning Under MAT

Documents To Be Furnished For Claiming FTC:

To claim FTC, in keeping with Rule 128, the taxpayer should furnish the following documents before or on the date of filing the return:

1. A statement:

a. Foreign income offered to be taxed

b. Foreign tax paid or deducted on foreign income in Form 67

2. A statement or certificate that specifies the nature of income and the tax amount either paid by the taxpayer or deducted from their income. This should be from:

a. The tax authority of the foreign country

b. The person responsible for the deduction of the tax

c. Signed by the taxpayer

2. Evidence of any tax payment outside India. This includes a bank challan or bank counterfoil for the payment of tax or acknowledgement of any online payment of the tax

What Is Form 67?

Form 67 is a mandatory document for claiming FTC. It is a statement that provides the details of income earned in a foreign country. It also furnishes details of the tax either paid by the taxpayer or deducted from their income. Section 139 (1) of the Income Tax Act states that Form 67 should be provided before or on the due date of filing the income tax return.

Procedure For Filing Form 67

The Central Board of Direct Taxes (CBDT) provides a procedure for filing Form 67 for FTC in India. It is given in the following:

• Taxpayers who are required to file their income tax returns online must prepare and submit Form 67 online
• Form 67 must be prepared and submitted either before or on the date of filing the tax return
• The form is available on the income tax departments’ e-filing portal in the taxpayers’ account
• To submit the form, an electronic verification code (EVC) or digital signature certificate (DSC) is compulsory

Related: Penalties Under the Income Tax Act

Filling And Submission Of Form 67

To prepare and submit Form 67, the taxpayer should login to their account in the e-filing portal of the income tax department. Next, they must select the option of Form 67 as well as the assessment year from the dropdown menu.

Note that the first four points of the form will include the taxpayer’s basic information. They should be prefilled. It will include the taxpayers’ name, PAN, and address details.

The address details given there may be amended, if required.

Afterwards, the taxpayer should enter the relevant details regarding their income earned from a foreign country or any specified territory outside India. Here the FTC details will also be mentioned.

Given below is a rundown of all the components that the taxpayer has to fill in Form 67:

• Name of the country/ specified territory: Here the taxpayer has to select the name of the specified territory or country where they earned their income
• Source of income: The taxpayer may have multiple sources of income. In such cases, they must declare each source of income separately in this column
• Income from outside India: The taxpayer should mention the amount they have earned in the foreign country or specified territory outside India
• Tax paid outside India: Here the taxpayer must mention details of the tax that they paid on their income (salary, property income, etc.) received outside India
  • Amount: Here the taxpayer must furnish details of the amount of the tax they paid
  • Rate: Here they must furnish details of the rate of the tax they paid
• Tax payable on such income under normal provisions in India: The taxpayer must provide details of the tax that they paid in India on their foreign income
• Tax payable on such income under Section 115JB /JC: Suppose the taxpayer is covered under alternate minimum tax (AMT). In this case, they must mention the minimum tax amount payable under the AMT provision
• Credit claimed under Section 90/90A: This section is applicable to people who work in countries with which India has inked the DTAA
  • Article No. of DTAA: Here the taxpayer has to mention the relevant treaty article under which the income is taxable
  • Rate of tax as per DTAA: The taxpayer has to mention the rate at which their income is taxable under the DTAA
  • Amount: The taxpayer has to mention the total tax amount as per the rate at which it is taxed under the DTAA
• Credit claimed under Section 91: This section is applicable for people who work in countries with which India has not inked the DTAA
• Total FTC claimed: Once all the details are entered, this field will be auto-updated with the lowest credit amount.

Once the taxpayer has entered all the fields, they can save it as a draft to review it later. After a thorough review of the submitted details, they may submit Form 67 by clicking on the ‘Submit’ button.

Related: How to File ITR of a Deceased Assessee?

Tailpiece

You do not want to be taxed twice on your hard-earned money. So, it’s crucial to opt for FTC in India for the income earned in another country. It’s important that you keep all the required documents ready at hand. Simply follow the instructions provided above and you’ve saved a sizeable chunk of your income.

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