Form 67: Claim of Foreign Tax Credit
- Simran Sahni
- Dec 18, 2023
- 8 min read
Updated: Oct 2, 2024
When a resident taxpayer earns income from a foreign country, they often face a situation where tax is deducted in the foreign country (source state) as well as being liable for tax in their home country (residence state). To avoid this double taxation, India provides a mechanism to claim Foreign Tax Credit (FTC). This is done by filing Form 67 with the Income Tax Department. Residents must submit Form 67 before the due date of filing their Income Tax Return (ITR) to claim credit for foreign taxes paid.
In some cases, Form 67 is also required if the carry-backward of losses in the current year results in the refund of foreign tax for which credit was claimed in previous years. It is essential to follow the procedures for filing Form 67 correctly to avoid disqualification for FTC claims.
Table of Content
What is Form 67?
Form 67, as mentioned above, is a crucial document that has to be furnished in order to claim FTC by a taxpayer. As per Income tax rules 128(9), It is also essential that Form 67 be furnished by the end of the assessment year before filing the Original Return under section 139(1) or Belated Return section 139(4), i.e. For A.Y 2024-25. You must file Form 67 before 31st Dec 2024 to claim the tax credit.
Contents of Form 67
Form 67 contains the below four sections:
Part A: Part A contains basic information, such as name, PAN or Aadhaar number, address, assessment year, receipt of details of the income from a country outside India and details of foreign tax credit claimed.
Part B: Part B contains details of refund of foreign tax as result of carry backward of losses and disputed foreign tax.
Verification: This section contains a self-declaration form as per the Income Tax Rules, 1962.
Attachments: The last section is attachments, where the taxpayer needs to attach a copy of the certificate or statement and proof of payment or deduction of foreign tax.
Form 67 Due Date for AY 2024-25
The Central Board of Direct Taxes (CBDT) revised Rule 128, allowing Form 67 to be filed on or before the end of an assessment year, provided the return of income for that year was filed within the time limits stipulated in Section 139(1) or Section 139(4).
If the taxpayer files an updated return under Section 139(8A), Form 67 (for income included in the updated return) must be submitted on or before the date of filing the updated return. However, if you are claiming FTC relief under Section 90, Form 67 must be submitted before the end of the assessment year. Filing the form after this deadline disqualifies you from claiming the credit.
The changes took effect from April 1, 2022, and apply to all FTC claims made during FY 2022-2023.
What is Foreign Tax Credit (FTC)?
Let’s imagine a scenario where a taxpayer is a resident of Country A (Residence State) and earns income from Country B (Source State). The Source State will withhold tax on the income earned within its jurisdiction. At the same time, the Residence State taxes the individual on their global income, including income earned in the Source State. This results in double taxation—the same income being taxed twice.
To relieve this problem, most countries, including India, have mechanisms for Foreign Tax Credit (FTC), which allows residents to deduct the tax already paid in the Source State from their tax liability in their Residence State.
Example
You are an Indian resident and receive a dividend of $2500 from a U.S. company. Under the India-U.S. Double Taxation Avoidance Agreement (DTAA), the U.S. withholds 25% tax at source, meaning $625 will be deducted, and you will receive only $1875 in your account. When filing your taxes in India, you must declare the full $2500 as your income because India taxes global income. However, you can claim FTC under the DTAA to avoid paying taxes on the amount already taxed in the U.S.
Here's how the tax calculation might look:
Particulars | Amount (INR) |
Dividend Income ($2500 * INR 83 per $) | 2,07,500 |
Tax liability in India (INR 2,07,500 * 31.2%) | 64,740 |
Less: Relief u/s 90 (INR 625 * INR 83 per $) | 51,875 |
Balance Tax Payable | 12,865 |
The above example shows how the Foreign Tax Credit can reduce your tax liability in India.
Concept of FTC In India
In India, Sections 90 and 91 of the Income Tax Act, 1961 provide the basis for claiming FTC:
Section 90: Applicable when India has entered into a Double Taxation Avoidance Agreement (DTAA) with the foreign country where the income originates.
Section 91: Applicable in cases where there is no DTAA between India and the country where the income arises.
Rules for claiming FTC are detailed under Rule 128, which took effect on April 1, 2017, providing clarity on the eligibility and conditions for FTC claims. Key points include:
FTC is allowed in the year the related income is taxed in India.
FTC is available only against the tax, surcharge, and cess payable under Indian law, not against penalties or interest.
Disputed foreign taxes are not eligible for FTC.
FTC is available even if the taxpayer pays Minimum Alternate Tax (MAT) under Section 115JB.
FTC is calculated separately for each income source and country.
FTC is the lesser of tax payable in India on the foreign income or the foreign tax paid.
The FTC amount must be converted to INR using the Telegraphic Transfer Buying Rate on the last day of the preceding month in which the tax was paid.
Procedure for Filing Form 67
The CBDT, vide notification no. 9/2017, dated 19 September 2017, has prescribed the procedure for filing Form 67, which has been enumerated here:
Form 67 is to be prepared and submitted online for taxpayers who are mandated to file their income tax returns electronically.
This form is available on the e-filing portal of the income tax department in the taxpayer’s account.
A Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is mandatory to submit Form 67
Submission of Form 67 shall precede the filing of the return of income.
Documents Required to Claim FTC
In accordance with Rule 128, in order to claim FTC, the taxpayer is required to furnish the following documents on or before the due date of filing of return:
A statement of :
foreign income offered to tax
foreign tax deducted or paid on such income in Form No. 67
Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the taxpayer:
From the tax authority of the foreign country
from the person responsible for the deduction of such tax
signed by the taxpayer
Proof of payment of taxes outside India.
Steps to Fill & Submit Form 67
Step 1: Log in to the Income Tax e-filing portal using your user ID and password.
Step 2: On the ‘Dashboard’, click ‘e-File’, click ‘Income Tax Forms’ and select ‘File Income Tax Forms’.
Step 3: On the next page, select Select 'Persons not dependent on any Source of income', proceed to the next page, and click on 'File Now' next to 'Double Taxation Relief (Form 67)’.
Step 4: Select the ‘Assessment Year (AY)’ and click ‘Continue’.
Step 5: On the instructions page, click ‘Let's Get Started’.
Step 6: Form 67 will be displayed. Fill the required details and click ‘Preview’.
Step 7: Verify the details and ensure you have uploaded the supporting document or the proof of tax withholding and after that click ‘Proceed to e-Verify’.
Step 8: Click ‘Yes’ on the confirmation message to submit the form.
Step 9: It will be redirected to the e-verify page. After successful e-verification, a success message will be displayed along with a transaction ID and acknowledgement number.
Note the transaction ID and acknowledgement for future reference. You will also receive a confirmation message to the email ID registered on the e-Filing portal.
FAQ
Q1. What is Form 67, and why is it required?
Form 67 is required to claim Foreign Tax Credit (FTC) for taxes paid in a foreign country. It must be submitted before filing your income tax return to claim tax credit on foreign income.
Q2. What types of income qualify for FTC?
Any foreign income that is taxed both in the foreign country and India qualifies for FTC. You should refer to the Double Taxation Avoidance Agreement (DTAA) for specific conditions.
Q3. Do I need to file Form 67 if I have foreign income but no taxes withheld?
No, Form 67 is required only if taxes were deducted or paid abroad. If there were no foreign taxes, Form 67 is not necessary.
Q4. What happens if I miss the due date for filing Form 67?
Missing the due date disqualifies you from claiming Foreign Tax Credit (FTC). Ensure you file Form 67 before the deadline to avoid losing the benefit.
Q5. Can I claim FTC for taxes paid on dividends earned from foreign investments?
Yes, you can claim FTC for taxes paid on dividends from foreign investments, as long as the tax was withheld in the foreign country and you report the income in India.
Q6. What if my foreign tax is refunded after filing Form 67?
If the foreign tax is refunded due to the carry-backward of losses, you must update Form 67 and adjust the FTC claimed in previous years.
Q7. Can I file Form 67 if I missed filing my income tax return on time?
Yes, but only if you file a belated return or an updated return under Section 139(8A). The form must be submitted before the return is filed.
Q8. Is filing Form 67 mandatory for foreign income reported in India?
Yes, if you want to claim Foreign Tax Credit on foreign income reported in India, filing Form 67 is mandatory.
Q9. Can Form 67 be filed offline?
No, Form 67 can only be filed online via the Income Tax e-Filing portal.
Q10. What should I do if the foreign tax credit exceeds my Indian tax liability?
In such cases, the excess FTC may be carried forward to subsequent years, depending on the provisions of the DTAA with the foreign country.
Q11. Is it necessary to provide proof of foreign tax payment when filing Form 67?
Yes, you must provide documentary evidence, such as a certificate of tax deduction or tax payment receipts from the foreign country, to support your Foreign Tax Credit (FTC) claim when filing Form 67.
Q12. Can I file Form 67 after filing my income tax return?
No, Form 67 must be submitted before or at the time of filing your income tax return to claim the FTC. Failing to do so will make you ineligible for the credit.
Q13. What if I have income from multiple foreign countries?
If you have income from multiple foreign countries, you need to file Form 67 separately for each country where you paid taxes to claim FTC.
Q14. What exchange rate should I use for converting foreign taxes to Indian Rupees?
You should use the exchange rate as specified by the Reserve Bank of India (RBI) on the last day of the month immediately preceding the month in which the tax was paid.
Q15. Can I claim FTC on income that is exempt in India but taxed abroad?
No, FTC cannot be claimed on income that is exempt from tax in India, even if it is taxed in the foreign country.
Q16. What happens if my foreign income is taxed at a higher rate than in India?
You can only claim FTC up to the Indian tax liability on the foreign income. Any excess foreign tax paid cannot be refunded or credited.
Q17. Can I claim FTC for taxes paid in a country with which India has no DTAA?
Yes, you can still claim FTC for taxes paid in a country with which India does not have a DTAA, but the credit will be allowed as per the provisions of Indian tax laws and subject to conditions.
Q18. Is there a penalty for not filing Form 67?
While there is no direct penalty for not filing Form 67, failure to file it will result in the denial of Foreign Tax Credit, which can significantly increase your tax liability.
Q19. What supporting documents should I attach when filing Form 67?
You need to attach documents such as a tax residency certificate, proof of foreign income, and proof of taxes paid in the foreign country (e.g., Form 16, tax receipts) when filing Form 67.
Q20. Can FTC be claimed on foreign social security payments?
Yes, FTC can be claimed on social security payments made to a foreign country, provided that these payments are taxed both in India and the foreign country, and you have the necessary documentation.
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