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Form 67 Decoded: A Practical Approach to Foreign Tax Credit


Form 67 Decoded: A Practical Approach to Foreign Tax Credit

If you earn income in one country while living in another, you may be liable for paying taxes in both countries. However, there's good news: you may be able to avoid double taxation by claiming tax credits for the taxes you already paid in the other country. To do this, you'll need to fill out Form 67 and submit it to the Income Tax Department before filing your tax return.


Using Form 67 is also important if you're entitled to a refund for taxes you paid in another country. By claiming the refund through this form, you can ensure that you don't end up paying more in taxes than you owe. It's important to note that these tax credits can only be claimed if a Double Taxation Avoidance Agreement (DTAA) exists between the two countries.


What is Foreign Tax Credit?

Let's say there's a person who lives in Country A and earns some money from Country B. Country B may withhold taxes from the money. But Country A also wants to levy taxes on all their income, including the money they made in Country B. This means the person is getting taxed twice: once in Country B and once in Country A.


To avoid this problem, many countries have a rule called Foreign Tax Credit (FTC). This means that if you pay tax on your income in a foreign country, you can use that tax amount to reduce the tax you have to pay in your home country. This way, you don't pay the tax twice on the same income.


Foreign Tax Credit in India

Indian tax laws have two sections, 90 and 91, about Foreign Tax Credit (FTC). Section 90 deals with FTC when India has a Double Taxation Avoidance Agreement (DTAA) with another country. Section 91 deals with FTC when there is no such DTAA. If an Indian resident has paid taxes in a foreign country, they can claim a credit against their tax payable in India.

What is Foreign Tax Credit?

Indian tax laws have two sections, 90 and 91, about Foreign Tax Credit (FTC). Section 90 deals with FTC when India has a  Double Taxation Avoidance Agreement (DTAA) with another country. Section 91 deals with FTC when there is no such DTAA. If an Indian resident has paid taxes in a foreign country, they can claim a credit against their tax payable in India.


Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Australia

Form 67 due date for AY 2023-24

The due date for filing Form 67 for the Assessment Year 2023-24 has been revised by the Central Board of Direct Taxes (CBDT) through an amendment to Rule 128. According to the new rule, Form 67 can be submitted on or before the conclusion of an assessment year if the income tax return for that year was filed within the specified time frames outlined in Section 139(1) or Section 139(4). 

In cases where the taxpayer has filed an updated return under Section 139(8A), Form 67, which pertains to the income included in the updated return, must be filed by the date of submission of the updated return. 

This amendment came into effect on April 1, 2022, and are applicable to all Foreign Tax Credit (FTC) claims made during the fiscal year 2022-2023.


Guidelines For Claiming Foreign Tax Credit

Rule 128, introduced in 2017, has provided guidelines for claiming FTC. These guidelines have resolved all doubts regarding FTC. Some of the important ones are:

  • You can claim the foreign tax credit in the year you report the income in India.

  • The credit is available only against surcharge, tax, as well as cess payable under Indian tax laws. It is not available against any fee, penalty or interest.

  • You cannot claim credit for disputed foreign taxes.

  • You can claim the credit even if you pay the Alternate Minimum Tax.

  • The credit is calculated individually for each of the sources of income from a specific country.

  • You can only claim the tax credits if a Double Taxation Avoidance Agreement (DTAA) exists between the two countries.

  • You can claim the credit which is the lower tax owed on the income in India as well as the foreign tax paid.

  • The conversion of currency for foreign tax payment shall occur based on the telegraphic transfer buying rate observed on the final day of the month preceding the tax payment.

What is Form 67?

Form 67 is an important document that one needs to submit to claim Foreign Tax Credit (FTC) by a taxpayer. It is mandatory to file Form 67 on or before the due date of filing the original return of income under section 139(1).


Contents of Form 67


Form No. 67

Form 67 has four main sections described below:

  • Part A of Form 67 is where basic information is provided, including the PAN Aadhaar or PAN number, name, address, foreign income details, foreign tax credit and assessment year.


Part A of Form 67


Add details of Income from country or specified territory outside india and foreign tax credit claimed

  • Form 67's Part B is the section where information about the refund of foreign tax regarding carrying back of losses and contested foreign tax is documented.


Form 67 Part B

  • The verification section of Form 67 includes a self-declaration form in accordance with the Income Tax Rules of 1962.


Verification section of Form 67

  • In the attachment section, the taxpayer provides payment proof or foreign tax deduction, as well as copies of the statement.


attachment section, the taxpayer provides payment proof or foreign tax deduction

Steps to Follow While Filing Form 67

Here are the simplified steps to follow while filing Form 67, as per the CBDT's notification:

  • Taxpayers who must file their income tax returns should prepare and submit Form 67 online.

  • This form can be found on the taxpayer's account in the income tax department's e-filing portal.

  • It is mandatory to have either a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC) to submit Form 67.

  • It is crucial to submit Form 67 before filing the income return.


Documents Required for Claiming Foreign tax Credit

To claim FTC, a taxpayer must submit certain documents before the due date of filing the return, as per Rule 128. These documents include the following:

  • Statement included in Form 67 providing information on foreign income subjected to taxes and foreign tax deducted or paid for such income.

  • A certificate or statement stating the kind of income and the tax amount deducted or paid by the taxpayer.

  • This certificate or statement can be obtained from the tax authority of the foreign country.

  • Proof of taxes paid outside India is also required.


Filling and submission of Form 67

Here are the steps to fill out and submit Form 67:



e-filing portal

  • Go to the E-file section and select the option to prepare and submit online forms.


Income Tax Forms

  • Choose Form 67 and select the relevant Assessment Year (AY) from the dropdown menu.


Select form 67


Select Assessment year

  • You will see instructions on how to fill out the form, along with the form itself.



Click On Lets Get Started

  • Enter all the required information, including details of taxes paid outside India, in Part A of Form 67.


Provide All details for Each Section and Click on Preview

  • Once you have filled in all the details, you can submit the form by clicking the ‘submit’ button.



After Confirmation, Click on Yes

Conclusion

Claiming Foreign Tax Credit (FTC) using Form 67 in India helps taxpayers reduce their tax liability. Following Rule 128 guidelines, taxpayers can claim credit for foreign taxes paid against their tax liability in India. This can be done by using Form 67 appropriately and ensuring that the foreign tax has not been disputed. FTC can also be claimed on Minimum Alternate Tax (MAT) payable under Section 115JB. Understanding these rules and regulations can help taxpayers reduce their tax burden and keep their finances in order.

FAQs

Q1. What form must you complete to claim credit for taxes paid in a foreign country?

To claim credit for foreign taxes paid in a country or specified territory outside India, you must submit Form 67.


Q2. What is the process for claiming a foreign tax credit in your Indian income tax return?

To claim this benefit, you must file Form 67 online the same year your income is taxed in India for the corresponding tax paid in a foreign country. The form must be submitted before filing your income tax return for that period.


Q3. When should Form 67 be used?

Form 67 must be submitted when a loss from the current year is carried back and results in a refund of foreign tax that was claimed in a previous year. This form is also necessary for cases where tax is payable on the income in India under normal provisions or under sections 115JB/115JC (if applicable).


Q4. What is the role of Form 67 in income tax?

Under Rule 128 of the Income Tax Rules, 1962, a resident taxpayer can claim credit for foreign taxes paid in a country or specified territory outside India. This credit can only be allowed if the taxpayer fills out Form 67 with the necessary details within the specified timelines.


Q5. Who can file Form 67?

Individual taxpayers who want to claim Foreign Tax Credit must complete Form 67. It is important to submit this form on or before the due date for filing their original income tax return under section 139(1).



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