As cross-border employment, freelancing, and global investments become increasingly common, a growing number of Indians are earning income from foreign sources. However, this also brings with it the challenge of double taxation, particularly for those who return to India and become tax residents again. Fortunately, India’s Foreign Tax Credit (FTC) mechanism provides relief from this burden.
India’s Income Tax Rules (Rule 128) allow residents to claim credit for taxes paid abroad on income that is also taxable in India. This is referred to as Foreign Tax Credit (FTC). FTC applies to foreign-sourced income such as:
Salary and consultancy income
Freelancing or professional fees
Capital gains from overseas investments
Foreign dividends and interest
Royalties and licensing income
⚠️ Important: FTC is available only to taxpayers classified as Resident and Ordinarily Resident (ROR). NRIs and RNORs (Resident but Not Ordinarily Resident) are generally taxed only on their Indian-sourced income and typically don’t need FTC.
India has signed Double Tax Avoidance Agreements (DTAA) with over 90 countries, including the USA, UK, UAE, Canada, and Australia, to prevent the same income from being taxed twice.
DTAA offers two relief methods:
Exemption Method – Income is taxed in only one of the two countries.
Credit Method – Income is taxed in both countries, but credit is given in one (usually India) for taxes paid abroad.
If no DTAA exists with a particular country, Section 91 of the Income Tax Act provides unilateral relief, allowing credit for foreign taxes paid even without a treaty.
To claim FTC, taxpayers must submit Form 67 online before or on the same day as filing their Income Tax Return (ITR). Follow these steps:
Collect documents that validate your foreign income and taxes paid abroad:
Salary slips, bank credits, or invoices
Certificate or statement of tax deducted abroad
Foreign tax return (if filed)
Tax Residency Certificate (TRC)
Foreign TDS certificates or employer statements
Visit the Income Tax India e-Filing Portal and log in using your PAN credentials.
Navigate to:e-File → Income Tax Forms → File Income Tax Forms → Select Form 67
Select Assessment Year: 2025–26
Enter the following details:
PAN, full name, and address
Foreign country details and type of income (salary, business, capital gains, etc.)
Amount of income and foreign tax paid
Convert foreign income and tax into INR using RBI TT buying rate on the last day of the previous month in which income was received
Attach these documents to support your FTC claim:
Foreign tax payment certificates
Tax receipts or employer-deduction certificates
Foreign tax return (if applicable)
Tax Residency Certificate (TRC) for claiming DTAA relief
Submit the completed Form 67 using Aadhaar OTP, Net Banking, or Digital Signature Certificate (DSC).
Once Form 67 is submitted, proceed to file your ITR—usually ITR-2 or ITR-3—ensuring the following:
Schedule FSI shows your foreign income
Schedule TR reflects the FTC claimed
All data in Form 67 exactly matches the ITR entries
Let’s say you earned $60,000 during FY 2024–25 by freelancing for a US client and paid $9,000 in US federal tax.
₹ Conversion: $60,000 × ₹83 = ₹49,80,000 (foreign income)
Foreign tax paid in INR: $9,000 × ₹83 = ₹7,47,000
Your total tax liability in India on this income is ₹8,10,000. You can claim an FTC of ₹7,47,000, and pay the balance ₹63,000 in Indian taxes. Ensure that this is all properly declared via Form 67 and your ITR.
❌ Late Filing of Form 67: Must be submitted before or along with your ITR. Filing afterward may lead to disallowance of FTC.
❌ Wrong Currency Conversion: Always use RBI TT buying rate on the last day of the previous month.
❌ Lack of Proof: You must attach proper documentation—self-declarations are not accepted.
❌ Mismatch of Data: Ensure details in Form 67 and ITR match exactly, particularly income and tax figures.
For residents earning foreign income, understanding and using Foreign Tax Credit provisions is essential to prevent double taxation. The correct and timely filing of Form 67 and related schedules in your ITR ensures smooth processing and optimum tax relief. As globalization grows, so does the importance of cross-border tax compliance, and the FTC is one of the most powerful tools at your disposal.
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