Foreign Tax Credit (FTC) Claims

What is foreign tax credit?

Indian residents are taxed on their worldwide income. When income is also taxed in another country — salary earned abroad, foreign dividends, fees from foreign clients with tax withheld, or foreign branch profits — the same income could be taxed twice. Foreign tax credit (FTC) lets you reduce your Indian tax by the foreign tax paid on that income, within limits.

Credit is available under a tax treaty, or unilaterally where there's no treaty. Claiming it requires filing Form 67 with supporting evidence.

The key terms

How foreign tax credit works:

Worldwide income

Residents (ordinarily resident individuals, and resident companies) are taxed in India on income from everywhere.

Credit limit

Credit is the lower of the foreign tax paid on the income and the Indian tax payable on that same income.

Country and source

Credit is computed separately for each country and each source of income.

Treaty and unilateral relief

Credit is given under a treaty where one applies, or under Indian law's unilateral relief where it doesn't.

Form 67

A statement of foreign income and tax paid, filed online with supporting documents, needed to claim credit.

Disputed foreign tax

Credit for foreign tax under dispute is generally allowed only once the dispute is settled, within set time limits.

Timing

Credit is given in the year the income is taxed in India, even if the foreign tax was paid in a different period.

Why it matters

Without FTC, cross-border income can be taxed twice:

Avoiding double tax

FTC is how residents avoid paying full tax twice on the same income.

Form 67 is essential

Credit can be denied if Form 67 isn't filed as required.

Evidence required

Foreign tax must be supported by certificates or returns from the foreign country.

Limits apply

Credit can't exceed the Indian tax on that income; excess foreign tax isn't refunded by India.

Timing mismatches

Different tax years in different countries complicate claims.

Growing relevance

Remote work, foreign clients, and foreign investments mean more residents have foreign income.

Refund in the other country

Sometimes the better route is reclaiming excess tax in the source country under the treaty.

Who is this for?

Non-residents are taxed in India only on Indian income, so FTC is mainly relevant for residents.

Treaty relief vs. unilateral relief

Two routes to credit:

What we'll need from you

Foreign income details

Income by country and source, with dates.

Evidence of foreign tax

Tax withholding certificates, foreign returns, or payment receipts.

Foreign tax year

The tax year of the foreign country, for matching periods.

Exchange rates

For converting income and tax into rupees.

Treaty details

The relevant treaty, if any.

Indian return data

Your Indian income, for computing the credit limit.

Fees depend on the number of countries and sources involved.

How we claim FTC

Claiming credit usually involves:

1. 1

   Identify foreign income

   All foreign income is identified by country and source.

2. 2

   Collect evidence

   Evidence of foreign tax paid or withheld is obtained.

3. 3

   Compute the credit

   Credit is computed per country and source, applying the limit.

4. 4

   File Form 67

   Form 67 is filed online with the supporting documents.

5. 5

   Claim in the return

   The income is reported and the credit claimed in the return.

6. 6

   Track processing

   We follow up if credit isn't given on processing.

After claiming

A few things to watch:

Keep evidence

Keep foreign tax certificates and returns for assessments.

Report disputes

If foreign tax changes after a dispute, credit may need revisiting.

Consider source-country refunds

Where foreign withholding exceeded the treaty rate, claim the excess back from that country.

Report foreign assets

Residents with foreign income usually also need to report foreign assets.

Plan withholding

Give foreign clients treaty forms upfront to reduce excess withholding.

Annual review

Review each year as foreign income changes.

Benefits and responsibilities