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| TL;DR |
| Foreign Tax Credit lets Indian residents offset tax paid abroad against their Indian tax liability – but Form 67 must be filed before your ITR, or the claim is denied outright. The credit allowed is the lower of the foreign tax paid or the Indian tax on that same income, computed source-wise and country-wise, not as one lump figure. |
Foreign Tax Credit (FTC) lets Indian tax residents offset tax paid abroad against their Indian tax liability on the same income, claimed via Form 67 filed before or with your ITR. The credit allowed is the lower of the foreign tax actually paid or the Indian tax payable on that income, computed separately for each country and source – filing Form 67 late gets the claim disallowed entirely, regardless of eligibility.
Most Foreign Tax Credit claims don’t get rejected because the taxpayer wasn’t eligible – they get rejected because Form 67 went in late, or after the return instead of before it. The eligibility rules and the calculation are usually the easy part. The part that actually trips people up is a filing deadline that’s easy to miss if you’re not looking for it. This guide walks through what FTC actually covers, why Form 67 timing matters more than almost anything else in the process, how much credit you can genuinely claim, and what changes depending on whether you’re salaried or running a business with foreign income.
1. What Foreign Tax Credit Covers – DTAA vs. Non-DTAA Countries
If you’re an Indian resident earning income abroad, that income can end up taxed twice – once by the country where you earned it, and again by India, since Indian residents are taxed on their worldwide income. Foreign Tax Credit exists to stop that double hit. It’s not a deduction that shrinks your taxable income; it’s a rupee-for-rupee credit against the tax you actually owe.
A quick example: Ms. K, an Indian resident, earns ₹10 lakh from a U.S. client. The U.S. withholds ₹1 lakh in tax. India taxes that same income at ₹1.5 lakh. With FTC, she claims credit for the ₹1 lakh already paid in the U.S., leaving her with ₹50,000 payable in India instead of the full ₹1.5 lakh.
FTC only applies to foreign income taxes, or taxes that function like income tax. It doesn’t cover VAT, sales tax, property tax, social security contributions, or any penalties and interest charged abroad.
Whether you get relief through a treaty or not depends entirely on whether India has a Double Taxation Avoidance Agreement (DTAA) with the country in question:
- DTAA countries (Sections 90 & 90A): relief comes through the credit method (most common – both countries tax the income, and India credits the foreign tax paid) or, less commonly, the exemption method (only one country taxes it at all, typically used for certain pensions or property income). This route needs a Tax Residency Certificate (TRC) and generally comes with lower withholding rates abroad and clearer rules on how different income types get taxed.
- Non-DTAA countries (Section 91): this is unilateral relief – India allows credit for foreign tax paid, but only up to what you’d owe in Indian tax on that same income. There’s no TRC requirement, but there’s also no treaty-based concession, so the relief tends to be less generous.
The mechanics of calculating and filing FTC are identical either way. The difference shows up in the treaty benefits available, not in the paperwork.
Who’s actually eligible?
Only Indian tax residents – individuals, resident companies, firms and LLPs managed from India, HUFs with a resident Karta, and resident trusts. NRIs don’t qualify, since they’re only taxed in India on Indian-sourced income to begin with. RNORs (Resident but Not Ordinarily Resident) can only claim FTC if the foreign income comes from a business or profession controlled from India. Foreign entities generally can’t claim it either, unless a specific DTAA provision applies. If you’re also remitting money abroad rather than bringing foreign income in, our guide to TCS on foreign remittances covers the LRS rates and thresholds that apply on that side of the transaction.
2. Filing Form 67 – The Step Most Taxpayers Miss Before the ITR Deadline
This is the part of the process that actually determines whether your claim survives. Form 67 has to be filed electronically, and it has to be filed before or along with your ITR for that assessment year – not after. Per CBDT Circular No. 9/2022, a Form 67 filed after the ITR due date means the FTC claim gets denied, even if you were otherwise fully eligible.
How to file it:
1. Log into the Income Tax e-Filing portal at incometax.gov.in
2. Go to e-File → Income Tax Forms → File Income Tax Forms
3. Select Form 67
4. Enter your income and tax details, along with which section applies – 90, 90A, or 91
5. Upload your supporting documents
6. E-verify using Aadhaar OTP, EVC, or DSC
7. Submit, and hold onto the acknowledgment
The form itself has three parts: taxpayer details (name, PAN, assessment year) along with the foreign income and tax paid; details of any refund or dispute over the foreign tax; and a self-verification declaration, with your supporting documents attached as PDFs.
Once Form 67 is filed, you still need to actually claim the credit in your return – that happens through Schedule FSI (Foreign Source Income, reported country-by-country and source-by-source) and Schedule TR (Tax Relief, where you cite Section 90/90A for DTAA countries or Section 91 for non-DTAA ones).
3. How Much Credit You Can Actually Claim (It’s Not Always 100%)
Here’s the part that surprises people: you don’t automatically get back everything you paid abroad. The FTC allowed is the lower of the foreign tax actually paid or the Indian tax payable on that same income – computed source-wise and country-wise, not as one lump figure.
Example – foreign salary, DTAA country
| Component | Amount (₹) |
| Foreign salary (converted to INR) | ₹20,00,000 |
| Foreign tax paid | ₹4,00,000 |
| Total Indian income (incl. foreign salary) | ₹30,00,000 |
| Total Indian tax liability | ₹7,50,000 |
Indian tax attributable to the foreign salary = (₹20,00,000 / ₹30,00,000) × ₹7,50,000 = ₹5,00,000. FTC allowed is the lower of ₹4,00,000 (foreign tax paid) and ₹5,00,000 (Indian tax on that income) – so ₹4,00,000, with nothing left over to carry forward.
Example – dividends, non-DTAA country
| Component | Amount (₹) |
| Foreign dividends | ₹5,00,000 |
| Foreign tax withheld (20%) | ₹1,00,000 |
| Total Indian income | ₹15,00,000 |
| Total Indian tax liability | ₹2,70,000 |
Indian tax on the dividends = (₹5,00,000 / ₹15,00,000) × ₹2,70,000 = ₹90,000. FTC allowed is the lower of ₹1,00,000 and ₹90,000 – so ₹90,000. The remaining ₹10,000 doesn’t just vanish, though: since AY 2022-23, excess FTC can be carried forward for up to 4 assessment years, reported under Schedule CYLA and tracked as it gets set off in later years.
A few things that quietly reduce what you can claim: foreign taxes need to be converted to INR using the Telegraphic Transfer Buying Rate (TTBR) from the last day of the month before payment. You can’t double-dip – no FTC on income you’ve already claimed a Section 80 deduction against, and none on income that’s exempt under a DTAA article. And the claim has to sit in the same assessment year the foreign income gets taxed in India; if a dispute over the foreign tax amount is still open, you can only claim credit once it’s resolved, and you’ll need to submit evidence within 6 months of settlement.
4. FTC for Salaried Employees vs. Business Owners With Foreign Income
The core FTC mechanics – Form 67, the lower-of calculation, TTBR conversion – are the same no matter what kind of foreign income you’re reporting. But how that income shows up, and how straightforward the claim is, tends to differ:
- Salaried employees working abroad usually have one clean income stream and one foreign tax certificate to reconcile, which makes Schedule FSI reporting fairly direct – the main risk is simply missing the Form 67 deadline.
- Business owners and professionals with foreign income – consulting fees, business profits from a foreign branch, multiple income streams across countries – need FTC computed source-wise and country-wise for each one separately, since the credit limit is applied per source, not in aggregate. This also means the documentation burden multiplies: separate proof of tax paid for each country, and often separate TRCs where DTAA benefits are being claimed on more than one income stream.
- RNOR business owners have an extra eligibility hurdle: FTC is only available if the foreign income comes from a business or profession that’s actually controlled from India – foreign business income unconnected to India doesn’t qualify.
Whichever category you fall into, the return still routes through the same Schedule FSI and Schedule TR fields – it’s the underlying documentation and source-wise computation that gets more involved as the income structure gets more complex.
5. Common Documentation the Department Asks For
Keep these ready before you file – mismatches or missing paperwork are one of the most common reasons a claim gets partially or fully denied:
| Document | Purpose |
| Certificate from the foreign tax authority | Proof of tax paid or deducted abroad |
| Foreign tax return (if applicable) | Verifies you actually filed abroad |
| Payment proof – challan or bank receipt | Shows the tax was genuinely paid |
| Statement of income | Clarifies the nature and amount of the income |
| Tax Residency Certificate (TRC) | Required if you’re claiming DTAA relief |
| Copy of the relevant DTAA article | Supports a treaty-based claim (optional but useful) |
| Currency conversion sheet (TTBR-based) | Mandatory for the INR conversion |
If any of these are in a language other than English, you’ll need a certified translation alongside them.
6. What Happens If You Claim FTC Without Filing Form 67 on Time
This is the mistake that undoes an otherwise valid claim more often than any calculation error. If Form 67 isn’t filed before your ITR – or isn’t filed at all – the FTC claim is disallowed outright, regardless of whether the foreign tax was genuinely paid and properly documented. There’s no partial credit and no informal workaround; the CBDT circular is explicit on this point.
Other errors that commonly cost people part or all of their claim:
| Mistake | Consequence |
| Not filing Form 67 before the ITR | FTC claim disallowed entirely |
| Mismatch between income in Form 67 and the ITR | FTC may be partially or fully denied |
| Claiming FTC on VAT, social security, or similar levies | Denied – only genuine income tax qualifies |
| Not reporting the foreign income at all | No FTC, and a possible penalty on top |
| Using the wrong currency conversion rate | Inaccurate FTC computation |
| Claiming FTC on tax that’s disputed or later refunded | The claim needs to be revised |
If you’ve missed the window, the practical options are limited – there’s no informal late-filing route for Form 67, which is exactly why timing this correctly matters more than most other steps in the process.
7. PKC’s Cross-Border Tax Advisory for Foreign Income & FTC Claims
Getting FTC right means getting three things right at once – the Form 67 timing, the source-wise credit computation, and the documentation trail – and missing any one of them can cost you the claim. This work is handled through PKC’s NRI Xclusive practice, our dedicated team for cross-border and international tax matters. PKC’s cross-border and NRI tax advisory team helps with:
- Filing Form 67 correctly and on time, before your ITR goes in
- Computing bilateral DTAA relief and unilateral Section 91 relief accurately, source-wise and country-wise
- Building a documentation file that holds up to scrutiny – TRCs, foreign tax certificates, payment proof, currency conversion records
- Planning around double taxation proactively, rather than reconciling it after the fact
- Tracking and carrying forward excess FTC across assessment years where applicable
- Handling more complex scenarios – multiple foreign income sources, business income with cross-border elements, disputed foreign tax positions
Frequently Asked Questions
Who can claim foreign tax credit in India?
Only Indian tax residents who’ve earned income abroad and paid tax on it there. You also need to include that foreign income in your Indian return and file Form 67.
How do I actually claim it?
File Form 67 on the Income Tax portal before you submit your return, and report the foreign income in your ITR using Schedule FSI and Schedule TR. You’ll also need proof of the tax paid abroad.
How is the credit calculated?
It’s the lower of the foreign tax paid or the Indian tax payable on that same foreign income. Convert the foreign tax to INR using the RBI’s TTBR rate from the preceding month.
Do I need to file Form 1116 for this?
No – Form 1116 is a U.S. tax form and doesn’t apply here. In India, Form 67 is what you need.
What’s the actual deadline?
Form 67 needs to be filed before or on the same day as your income tax return. Miss that window, and the FTC gets disallowed – even if you were otherwise fully eligible.
