Foreign Tax Credit in India: How to Claim FTC, Form 67 Filing & Tax Rules (2025)

 

If you earn income from another country, you may have to pay tax both in that country and in India. This can lead to the same income being taxed twice. To avoid this, the Indian tax system allows eligible taxpayers to claim a Foreign Tax Credit (FTC).

What is Foreign Tax Credit (FTC)?

Foreign Tax Credit (FTC) is a tax relief available to Indian residents who have already paid tax on their foreign income in another country. It allows them to reduce their tax liability in India by claiming credit for the tax paid abroad.

The main purpose of FTC is to ensure that the same income is not taxed twice.

Why is Foreign Tax Credit Important?

Foreign Tax Credit offers several benefits, including:

• Prevents double taxation on the same income.

• Reduces the total tax burden.

• Helps taxpayers who earn income from overseas.

• Ensures compliance with Indian income tax rules.

How Does Foreign Tax Credit Work?

An Indian resident is generally required to pay tax on worldwide income. If tax has already been paid in another country on the same income, the taxpayer can claim a credit for that tax while filing the income tax return in India.

Example:

Suppose an Indian resident earns interest income from another country.

• Tax is deducted in that foreign country.

• The same income is also taxable in India.

• Without FTC, the taxpayer would pay tax twice on the same income.

• By claiming Foreign Tax Credit, the tax paid outside India can be adjusted against the tax payable in India, subject to the applicable rules.

What is Form 67?

Form 67 is a mandatory form for taxpayers who want to claim Foreign Tax Credit in India.

It contains details of:

• Foreign income earned during the financial year.

• Tax paid in the foreign country.

• The amount of Foreign Tax Credit being claimed.

Submitting Form 67 is necessary to claim the benefit of taxes already paid outside India.

When Should Form 67 Be Filed?

To claim Foreign Tax Credit, Form 67 should be filed within the prescribed time under the Income Tax Rules. It is generally required to be submitted on or before the end of the relevant assessment year and before claiming the credit in the income tax return.

Filing the form within the prescribed timeline is important. Delayed filing may affect your eligibility to claim the Foreign Tax Credit.

Eligibility for Foreign Tax Credit (FTC)

Foreign Tax Credit is available only if certain conditions are met. The main eligibility rules are:

• Only a resident taxpayer can claim Foreign Tax Credit for tax paid in another country.

• The credit can be claimed only in the financial year in which the foreign income is taxed in India.

• The credit is allowed only for the amount of tax related to the foreign income.

• Interest, penalties, or other similar charges paid to a foreign tax authority cannot be claimed as Foreign Tax Credit.

• If India has a Double Taxation Avoidance Agreement (DTAA) with the foreign country, the credit will be available only for the taxes covered under that agreement.

• The credit allowed cannot be more than the tax payable in India on the same foreign income.

• Eligible taxpayers may also be able to claim Foreign Tax Credit while calculating tax under the applicable alternate tax provisions, subject to the prescribed rules.

How is Foreign Tax Credit Calculated?

The amount of Foreign Tax Credit is calculated by comparing the following two amounts:

• The tax paid in the foreign country.

• The tax payable in India on the same foreign income.

The taxpayer can claim the lower of these two amounts as Foreign Tax Credit.

If the foreign tax is paid in another currency, it must be converted into Indian Rupees using the exchange rate prescribed under the Income Tax Rules.

Simple Example

Suppose an Indian resident earns dividend income from a company located outside India.

• Tax is deducted in the foreign country before the income is received.

• The same income must also be reported while filing the income tax return in India.

• The tax payable in India is calculated on that foreign income.

• The tax already paid in the foreign country is then compared with the tax payable in India.

• The taxpayer can claim the lower of the two amounts as Foreign Tax Credit.

• After adjusting this credit, only the remaining tax, if any, needs to be paid in India.

Foreign Tax Credit is generally claimed under the relevant provisions of the Income Tax Act or the applicable Double Taxation Avoidance Agreement (DTAA), depending on the taxpayer’s eligibility.

How to Claim Foreign Tax Credit (FTC) in India

If you are an Indian resident and earn income from another country, you can claim Foreign Tax Credit by following these simple steps:

1. Convert Your Foreign Income

Convert your foreign income into Indian Rupees (INR) using the exchange rate prescribed under the Income Tax Rules.

2. Report the Income Correctly

Include your foreign income in your Indian income tax return under the correct income category, such as salary, interest, dividend, or capital gains.

3. Check the Tax Relief Available

If India has a Double Taxation Avoidance Agreement (DTAA) with the foreign country, check the applicable tax relief provisions and calculate the Foreign Tax Credit you are eligible to claim.

4. Obtain a Tax Residency Certificate (TRC)

If required, obtain a Tax Residency Certificate (TRC). This certificate helps establish your tax residency and supports your claim under the applicable tax treaty.

5. Fill in Schedule FSI

While filing your income tax return, provide details of your foreign income in Schedule FSI. This generally includes:

• Country where the income was earned.

• Taxpayer Identification Number (if applicable).

• Foreign income earned.

• Tax paid in the foreign country.

• Tax payable in India on the same income.

• Foreign Tax Credit claimed.

• Details of the applicable tax treaty, if any.

6. File Form 67

Submit Form 67 through the Income Tax Portal before claiming the Foreign Tax Credit. Filing this form within the prescribed time is important for claiming the credit.

Documents Required to Claim Foreign Tax Credit

To claim Foreign Tax Credit, you should keep the following documents ready:

• Form 67.

• Details of foreign income earned.

• Proof of tax paid or tax deducted in the foreign country.

• Certificate or statement issued by the foreign tax authority or the person who deducted the tax.

• Payment proof, where the taxpayer has directly paid the foreign tax.

• Any other supporting documents required under the Income Tax Rules.

Reporting Foreign Income in India

For Resident Taxpayers

Residents of India must report their foreign income in Schedule FSI while filing their income tax return, if applicable.

For Non-Resident Taxpayers (NRIs)

In most cases, income earned outside India is not taxable in India for non-residents. However, if they are eligible to claim tax relief in India for foreign taxes paid, they may need to report the relevant details in the prescribed schedules of the income tax return.

Conclusion

Foreign Tax Credit helps Indian residents avoid paying tax twice on the same income earned abroad. By reporting foreign income correctly, filing Form 67 within the prescribed time, and maintaining the required documents, eligible taxpayers can claim the available tax credit and comply with Indian tax laws.

If you have foreign income or need assistance with Foreign Tax Credit, Form 67, or international tax compliance, consulting a qualified tax professional can help ensure accurate filing and compliance with the applicable tax regulations.

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