Understanding Foreign Tax Credit & Form 67

Alankar Mishra

Author

Updated: 16-04-2025 at 12:52 PM

Earning foreign income can get tricky for Indians living and working abroad. A majority of people suffer from the issue of double taxation, meaning they pay tax on the same income in India as well as the foreign country that they are working in.

To mitigate this issue, the government of India has come forth with Foreign Tax Credit (FTC) under Income Tax Rule 128. The FTC allows taxpayers to receive credit for taxes paid to foreign countries to ensure they are not taxed twice for the same income. However, to claim this benefit, Form 67 needs to be filed, and the DTAA( Double Taxation Avoidance Agreement) guidelines must be followed.

Understanding Foreign Tax Credit (FTC)

Foreign Tax Credit (FTC) allows citizens to claim a credit for taxes paid to another country, thus helping people eliminate the impact of double taxation. Nevertheless, FTC can only be claimed if:

The foreign income has tax levied in India also.
The credit is pro-rated in cases when foreign tax is applicable for several years.
FTC is not available for penalties or interest, only for actual tax payments.
Taxpayers are required to submit Form 67 along with an Income Tax Return (ITR) on or before the deadline.

Taxation Of Foreign Income In India

The Tax on foreign income is determined based on your residency classification in India. If you fall under the category of a tax resident, your foreign income could be taxable. This is how residency is determined:

Who Qualifies as a Tax Resident in India?

A person is liable for tax on global income in India if he meets either condition:

Has been in India for 182 days or more in a particular financial year.
Has been in India for 60 days during the last financial year as well as for 365 days or more during the preceding four years.

A Resident & Ordinarily Resident (ROR) individual is liable to pay tax on global income in India.

Non-Resident Indians (NRIs) are liable to pay tax only on income received in India.

Key Provisions Under Income Tax Rule 128

Certain rules apply when avoiding foreign taxable income. The Foreign Tax Credit (FTC) is one such rule. Here are the relevant provisions under Income Tax Rule 128:

Provision	Details
Applicable Year	FTC is claimed in the same year the foreign income is taxed in India.
Proportional Adjustment	If foreign tax applies over multiple years, FTC is split accordingly.
Restrictions	FTC cannot be used against penalties or interest.
Claiming After Tax Dispute	If a foreign tax is under dispute, FTC can be claimed after resolution.
Maximum FTC Allowed	The lower of foreign tax paid OR Indian tax payable on that income.
Documents Required	Income statements, proof of foreign tax payment, Form 67, and a Tax Residency Certificate (TRC).

How to Claim Foreign Tax Credit? (Form 67 Filing Process)

Requesting a Foreign Tax Credit is an easy online task, but it should be done before submitting your Income Tax Return. Follow these steps to submit Form 67:

Step 1: Log in to the Income Tax e-Filing portal.

Step 2: Go to e-File > Income Tax Forms > File Income Tax Forms.

Step 3: Select Form 67 and choose the relevant Assessment Year.

Step 4: Fill in the income details and tax credit claims.

Step 5: Upload supporting documents such as foreign tax payment proof.

Step 6: Verify the form using OTP, DSC, or net banking.

Step 7: Once verified, a transaction ID and acknowledgment number are generated.

Documents Required

One of the most crucial requirements of a Foreign Tax Credit FTC claim is relevant documentation. Ensure that you have the following ready before filing your taxes:

Proof of foreign tax payments with Form 67.
TDS certificates along with tax return (ITR) copies.
Foreign employers’ payslips and income statements.
Tax Residency Certificate from the source country for both TDAA benefits and tax payments.

Importance of DTAA (Double Taxation Avoidance Agreement)

India has DTAA agreements with over 85 countries to avoid double taxation on income earned abroad. Under DTAA:

Taxpayers can claim relief in two ways:
Exemption Method: Income is taxed only in one country.
Credit Method: Tax paid in one country is credited against tax liability in India.
DTAA ensures fair taxation and prevents income from being taxed twice.

Conclusion

For Indians living and working abroad, it is essential to comprehend the implications of the Foreign Tax Credit (FTC). Completing Form 67 is a straightforward procedure which is helpful as long as there is compliance with the DTAA and FTC policies.

Taxpayers receive relief from the burden of double taxation under Rule 128 of the Income Tax Act. Taking advantage of Form 67 eliminates excessive tax controversy due to lack of proper documentation and form submission.

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