NRIeCA

Foreign Tax Credit

Unlocking the Benefits of Foreign Tax Credit: A Comprehensive Guide

Introduction:

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For individuals navigating the complexities of global income taxation, understanding and claiming Foreign Tax Credit (FTC) is a vital aspect. This comprehensive guide sheds light on the significance of FTC, its application for returning NRIs and residents, and the procedural intricacies of availing this credit in India.

  1. Foreign Tax Credit for Residents: Residents in India are eligible for a credit on the amount of foreign tax paid by them in another country or specified territory. This credit is applicable in the year when the corresponding income has been offered to tax or assessed in India, as specified in the rules.
  2. Challenges Faced by Returning NRIs: Returning NRIs, having earned income abroad due to investments, face the challenge of double taxation as they are taxed in India as Ordinarily Residents. Availing FTC becomes essential to mitigate this burden.
  3. Double Taxation for Indian Residents: Indian residents engaged in international consultancy, technical services, or holding investments abroad can also face double taxation. They are required to offer foreign income in India and pay tax, necessitating the use of FTC to avoid this dual tax liability.
  4. How to Claim Foreign Tax Credit: To claim FTC, taxpayers must file Form No. 67 on the Income Tax portal in online mode within the specified time. This process requires the submission of supporting documents and verification through a digital signature or an acceptable mode.
  5. NRIeCA’s Expert Services: Our team of expert CAs at NRIeCA is well-equipped to provide services such as advice and filing of Form No. 67. We ensure accurate and legitimate claims of Foreign Tax Credit based on the documents available and guide in compiling necessary documents for the claim.
  6. Prerequisites for Foreign Income Declaration and Tax Claim: Before declaring foreign income and claiming FTC in the Indian Income Tax Return, certain prerequisites need attention:
  • Conversion of foreign income and tax into Indian Rupees at the TT Buying rates of the source country’s currency on the specified date.
  • Compilation of foreign income and tax as per the applicable tax period in India (April-March) compared to the calendar year period in most countries.
  • Understanding that refund of foreign tax is not allowed in India, and full tax credit is granted in the Indian ITR for taxes paid abroad.
  • Awareness of double tax relief and its calculation, especially in countries where India does not have a Double Taxation Avoidance Agreement (DTAA).
  • Thorough record-keeping of income and taxes paid abroad for potential submission to Tax Authorities.
  1. Filing and Revision of Form No. 67: While earlier Form No. 67 had to be filed on or before the due date of ITR filing, recent amendments allow filing at any time during the relevant assessment year. Additionally, there is no bar on revising Form No. 67, providing flexibility in case of updates or corrections.

Conclusion: Effectively navigating the process of claiming Foreign Tax Credit in India demands a deep understanding of rules, timely filing, and accurate documentation. Seeking professional assistance ensures a seamless experience and maximizes the benefits of this crucial aspect of international taxation.

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Frequently Asked Questions

Foreign Tax Credit (FTC) is a mechanism allowing residents and returning NRIs to claim a credit for foreign taxes paid. This is crucial to avoid double taxation on income earned abroad.

Returning NRIs often face income taxation in foreign countries, leading to foreign tax payments. FTC helps offset the tax burden when they offer the corresponding income for taxation in India.

Yes, residents engaged in global consultancy, technical services, or holding foreign investments may face double taxation. FTC serves as a tool to prevent dual tax liability on such income.

To claim FTC, taxpayers must file Form No. 67 on the Income Tax portal in online mode within the specified time. This involves providing supporting documents and verification through a digital signature or an acceptable mode.

NRIeCA’s expert team provides services such as advice and filing of Form No. 67. They ensure accurate and legitimate claims of FTC based on available documents and guide in compiling necessary paperwork for the claim.

Before declaring foreign income and claiming FTC, individuals should consider prerequisites such as currency conversion, aligning tax periods, understanding the non-refundability of foreign tax in India, and awareness of double tax relief.

Yes, Form No. 67 can be revised within the stipulated time, providing flexibility for updates or corrections. It can be filed anytime during the relevant assessment year, as per the latest amendments.

Yes, FTC is available even in countries without a DTAA. Relief is calculated as the average income tax in India, subject to taxes paid abroad.

FTC reduces the tax liability by allowing NRIs to credit the foreign taxes paid against their Indian tax obligations, ensuring a fair and balanced taxation approach.

Timely and comprehensive record-keeping of foreign income and taxes paid abroad is crucial for FTC claims. These records may need to be submitted to Tax Authorities during examinations.

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