The Central Board of Direct Taxes (CBDT) has recently amended the rules governing foreign tax credit (FTC) in order to give relief to those taxpayers who have one foot in the overseas territory and the other in India.
Usually, when an Indian resident earns income abroad, they are supposed to pay taxes in India. But if they have already paid a portion of taxes abroad, they can claim tax credit for that portion. There are two scenarios in which this can happen.
First one is when a tax payer receives income under certain categories such as dividend received from investments made abroad and he gets the money after the tax deduction. In the second scenario, an Indian resident receives income in a foreign country such as rent and he is supposed to pay taxes there. In both these cases, tax payer can claim the FTC.
“One has to first check if the taxes paid are eligible for tax exemption or not according to the DTAA (Double Taxation Avoidance Agreement) provisions. Certain taxes are not eligible for exemption. One has to declare the taxes paid while filing the tax return. Another thing is to file an online form 67 which can be filed later after filing the tax return also,” said chartered accountant Chirag Chauhan.
What is form 67?
As per Rule 128 of the Income Tax Rules, 1962, a resident taxpayer is eligible to claim credit for any foreign tax paid outside India.
The credit is allowed when the assessee gives the required particulars in form 67 within the specified timelines. The form 67 has four sections. These are part A (basic info), part B (details of refund), verification (self-declaration) and attachments (documents).
According to the earlier set of rules, taxpayers who paid taxes abroad faced a problem in arranging the documents at the time of, or prior to the filing of I-T returns to claim FTC.
“They were obligated to submit proof of tax payment before the due date. A statement was to be filed on or before the due date for filing income tax returns under section 139(1). But as it could happen that by the time of filing return here, tax was not to be paid there — causing inconsistencies in the two returns,” said Deepak Aggarwal, a Delhi-based chartered accountant.
But as the latest notification permits, taxpayer can now furnish the statement in form number 67 on or before the end of the relevant assessment year.
According to the new rule, the taxpayer has one year to comply with the tax laws. The statement in form number 67 can now be furnished on or before the end of the relevant assessment year.
However, experts warn that the rules must be used with care. “One should refrain from submitting form 67 on the last day as it can lead to some practical challenges. Also, no option is given to revise the form after it has been filed,” said Aggarwal.