Form 67: Overview, Importance & Filing Procedure for Foreign Tax Credit

Resident taxpayers earning foreign income often face the issue of double taxation—being taxed in both the source country and the resident country. To address this, the Indian Income Tax Act allows individuals to claim a Foreign Tax Credit (FTC) by filing Form 67 with the Income Tax Department. Form 67 is a crucial document that enables taxpayers to claim credit for foreign taxes paid, ensuring they are not taxed twice on the same income. The form is also required in cases involving the carry-backwards of current-year losses that result in a refund of foreign tax previously credited. This article provides a detailed overview of Form 67, its importance, and the filing procedure to avail the FTC.

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What is the Foreign Tax Credit (FTC) in Income Tax?

The Foreign Tax Credit (FTC) is a relief mechanism designed to avoid double taxation when a resident taxpayer earns income from a foreign country. In such cases, the source country, where the income originates, may deduct tax at source, while the resident country taxes the same income as part of the individual's overall income. This leads to double taxation of the same income, which can significantly increase the taxpayer’s liability.

To prevent this, India provides a Foreign Tax Credit under the Income Tax Act, allowing residents to claim credit for taxes paid in the source state against their tax liability in the residence state. This credit is typically claimed under applicable Double Taxation Avoidance Agreements (DTAAs) and by filing Form 67 with the Income Tax Department.

Example:

Suppose you're an Indian resident and you earn royalty income of €3,000 from a company in Germany. As per the India-Germany DTAA, Germany withholds 10% as tax at source, which amounts to €300, and you receive €2,700 in your account. However, while filing your Income Tax Return (ITR) in India, you are required to report the entire €3,000 (approx. ₹2,70,000 assuming €1 = ₹90) as part of your global income.

Now, let’s compute your Indian tax liability and the FTC:

This example shows how the FTC ensures that you only pay the difference between your domestic tax liability and the tax already paid abroad, thus preventing double taxation.

Sections Involved in Foreign Tax Credit in India

The Indian Income Tax Act provides relief from double taxation through specific provisions that allow residents to claim Foreign Tax Credit (FTC) for taxes paid in other countries. The two key sections governing the FTC are Section 90 and Section 91. Below, we have details about the section:

• Section 90: This section applies when India has a Double Tax Agreement (DTAA) with the country where the income arises. It allows the taxpayer to claim FTC as per the terms of the DTAA. The credit is limited to the lower of the tax paid in the foreign country or the Indian tax liability on that income. Relief under this section is often referred to as bilateral relief.
• Section 91: This section applies when India does not have a Double Tax Agreement (DTA) with the foreign country. It still permits Indian residents to claim FTC on foreign income, ensuring that taxpayers are not penalised due to the absence of an agreement. This relief is known as unilateral relief and is allowed only if the income is taxed twice and the taxpayer is a resident of India.

Rules to Avail the FTC in India

To bring clarity and consistency in the process of claiming Foreign Tax Credit (FTC), the Indian government introduced Rule 128 under the Income Tax Rules, effective from April 1, 2017. Here are the key rules that taxpayers must follow:

• Year of Claim: FTC can only be claimed in the same year in which the corresponding foreign income is offered to tax or assessed in India.
• Eligible Components: FTC is allowed only against tax, surcharge, and cess payable under Indian tax laws. It cannot be claimed against any interest, fee, or penalty.
• Disputed Taxes: FTC is not available for any foreign tax that is under dispute. The credit can be claimed only if the foreign tax has been paid and is not challenged in any legal forum.
• Availability under MAT: FTC is allowed even when tax is paid under Section 115JB (Minimum Alternate Tax), ensuring relief for companies subject to MAT.
• Computation by Source and Country: FTC is computed separately for each source of income and for each country from which the income is earned, and then aggregated to arrive at the total credit.
• Limit of Credit: The FTC allowed shall be the lower of:
• The tax payable in India on such foreign income, and
• The foreign tax is paid on that income.
• Conversion Rate: Foreign tax paid must be converted into Indian currency using the Telegraphic Transfer Buying Rate (TTBR) of the last day of the month preceding the month in which the tax was paid or deducted.

Documents Required to Claim Foreign Tax Credit (FTC)

As per Rule 128 of the Income Tax Rules, taxpayers who wish to claim Foreign Tax Credit (FTC) must furnish specific documents to the Income Tax Department. These documents must be submitted on or before the due date of filing the Income Tax Return (ITR). 

• Form 67: A mandatory statement containing:
• Details of foreign income offered to tax in India
• Amount of foreign tax deducted or paid on such income.
• Certificate or Statement of Tax Paid: A certificate or statement that mentions the nature of income and the amount of foreign tax deducted or paid. This can be obtained from:
• The tax authority of the foreign country, or
• The person responsible for deducting the tax, or
• Self-certification by the taxpayer
• Proof of Payment of Foreign Tax: Document evidence or receipts showing that the foreign tax has been paid by the taxpayer outside India.

Let’s delve into the Form 67 in detail, 

Form 67 in Income Tax - Brief Overview

As mentioned, Form 67 is a mandatory statement that must be furnished by a resident taxpayer seeking to claim credit for foreign taxes paid, either through deduction or otherwise, on income earned outside India. To avail the Foreign Tax Credit (FTC), Form 67 must be submitted on or before the due date for filing the income tax return under Section 139(1) of the Income Tax Act. Additionally, this form is also required if a carry backward of current-year losses results in a refund of foreign tax for which credit was claimed in any earlier assessment year.

Who Needs to File Form 67?

Any resident taxpayer who has paid foreign tax - either through deduction or otherwise - on income earned outside India and intends to claim Foreign Tax Credit (FTC) in India is required to file Form 67.

Contents of Form 67

Form 67 is structured into four main sections, each capturing specific details required for claiming the Foreign Tax Credit (FTC):

• Part A: This section captures basic taxpayer information, including Name, PAN or Aadhaar, Address, and Assessment Year. It also includes receipt details of foreign income and the amount of FTC claimed.
• Part B: Part B requires disclosure of any refund of foreign tax arising due to the carry backward of losses and information on disputed foreign taxes.
• Verification: This section includes a self-declaration as prescribed under Rule 128 of the Income Tax Rules, 1962, affirming the accuracy of the information provided.
• Attachments: In the final section, the taxpayer must attach a certificate or statement specifying the foreign tax paid or deducted, along with proof of such payment.

Below, we have attached the Form 67 for your reference: 

How to File Form 67 and Claim Foreign Tax Credit?

Form 67 can only be submitted online through the Income Tax Department’s e-Filing portal. Follow the steps below to file Form 67 and claim Foreign Tax Credit (FTC):

Step 1: Log in to the e-Filing portal using your User ID (PAN) and password.

Note: If your PAN is not linked with Aadhaar, a pop-up will indicate that your PAN is inoperative. You can click ‘Link Now’ to link it or click ‘Continue’ to proceed.

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

Step 3: On the ‘File Income Tax Forms’ page, locate Form 67 manually or use the search box.

Step 4: Select the relevant Assessment Year (A.Y.) and click Continue.

Step 5: Read the instructions and click Let’s Get Started.

Step 6: Fill in the required details in Form 67 (Part A, Part B, Verification, and Attachments). Click Preview once done.

Step 7: Review the form on the Preview page, then click Proceed to e-Verify.

Step 8: Click Yes to confirm and continue to the e-Verify page.

Note: If your PAN is still inoperative, another pop-up will appear. Choose ‘Link Now’ or ‘Continue’ as needed.

Step 9: After successful e-Verification, you’ll receive a success message with a Transaction ID and Acknowledgement Number. A confirmation will also be sent to your registered email ID.

Due Date for Filing Form 67

Form 67 must be filed on or before the end of the relevant assessment year if the income tax return is filed under Section 139(1) (original) or 139(4) (belated). For updated returns under Section 139(8A), Form 67 must be filed on or before the date of filing the updated return. However, to claim relief under Section 90, Form 67 must be submitted before the end of the assessment year, else the Foreign Tax Credit (FTC) claim may be disallowed.

Example: For foreign income earned in FY 2023–24 (AY 2024–25), Form 67 should be filed by March 31, 2025.

Conclusion

Form 67 plays a vital role in helping resident taxpayers avoid double taxation by enabling them to claim Foreign Tax Credit (FTC) on income earned abroad. Filing this form accurately and within the prescribed timelines is essential to ensure that foreign taxes paid are rightly credited against Indian tax liabilities. With detailed requirements and procedures governed by Rule 128, compliance with Form 67 is crucial for availing relief under Sections 90 or 91 of the Income Tax Act. 

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FAQs

1. What is Form 67 and why is it important?

Form 67 is a mandatory form that resident taxpayers must file to claim Foreign Tax Credit (FTC) for taxes paid on income earned abroad. It ensures relief from double taxation under the Indian Income Tax Act.

2. Who needs to file Form 67?

Any resident Indian who has earned income from a foreign country and paid taxes there, and intends to claim FTC in India, must file Form 67.

3. When should Form 67 be filed?

Form 67 must be filed on or before the due date of filing the Income Tax Return under Section 139(1) or before filing a belated or updated return, depending on the case.

4. Can I claim Foreign Tax Credit (FTC) without filing Form 67?

No, FTC claims will be disallowed if Form 67 is not filed within the prescribed time limit, as per Rule 128 of the Income Tax Rules.

5. What are the key sections of the Income Tax Act related to FTC?

FTC is governed under Section 90 (for countries with DTAA) and Section 91 (for countries without DTAA) of the Income Tax Act.

6. What documents are required to file Form 67?

Along with Form 67, you must provide a certificate or statement of foreign tax paid, proof of payment, and details of the foreign income offered to tax in India.

7. Is Form 67 applicable if foreign tax is under dispute?

No, FTC cannot be claimed for any foreign tax amount that is under dispute or litigation in the foreign country.

8. How is the foreign tax amount converted into INR for FTC purposes?

Foreign tax is converted into Indian Rupees using the Telegraphic Transfer Buying Rate (TTBR) of the last day of the month preceding the month in which the tax was paid.

9. Is FTC allowed for companies paying tax under MAT (Section 115JB)?

Yes, FTC is also allowed for companies that are liable to pay tax under Minimum Alternate Tax (MAT).

10. Can IndiaFilings help in filing Form 67?

Yes, IndiaFilings offers expert assistance to ensure accurate filing of Form 67 and to help you successfully claim Foreign Tax Credit.

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