Paid tax abroad? Remember to submit Form 67 and proof at earliest

If you don't do so, both processing of your tax return and refund could get delayed

The Central Board of Direct Taxes (CBDT) has recently amended the rules that govern Foreign Tax Credit (FTC). These changes will provide relief to taxpayers who pay tax in foreign jurisdictions and wish to claim credit for it. 

What’s FTC

Often, foreign income received by an Indian resident in a foreign country is taxed there. To avoid double taxation, Indian law allows credit for tax paid in a foreign jurisdiction. The tax paid abroad can be adjusted against the tax liability in India on the same income. Such credit is known as FTC and is of two types. 

Ankit Jain, partner, Ved Jain & Associates says, “In the first case, a taxpayer in India receives income of certain types, such as professional fee, dividends, interest, etc. in India from a foreign party, and that party deducts tax as prescribed under the Double Taxation Avoidance Agreement (DTAA). The amount of tax deducted by the foreign party is the FTC.”

In the second scenario, an Indian tax resident receives income in a foreign country, such as rent or money on sale of capital assets. Jain says, “Here, no tax is deducted but the taxpayer is required to deposit tax and file tax return in that country. This tax paid becomes the FTC.”

The amendment

Under the old rule, taxpayers who had paid tax abroad faced challenges in providing the documents that had to be submitted in India to claim FTC. They had to submit proof of tax payment before the due date for filing tax returns. A statement on Form 67 along with certain documents had to be filed on or before the due date for filing income-tax return under Section 139(1) for taxpayers who are mandated to file ITR electronically. 

Jain says, “Due to the different reporting periods followed by foreign countries, the tax on such income was not due to be paid there by the due date of filing tax return in India. Hence, the taxpayer was forced to furnish incorrect details or forgo FTC.”

According to Maneet Pal Singh, partner, I.P. Pasricha & Co, “CBDT’s latest notification has amended Rule 128 retrospectively so that this benefit is available to all the FTC claims filed during the current financial year, i.e., within the time specified under Section 139(1) or Section 139(4) of the Act. Accordingly, the statement in Form No. 67 can now be furnished on or before the end of the relevant assessment year.”

The impact 

The taxpayer now has one year to comply with the tax laws. Naveen Wadhwa, deputy general manager, Taxmann says, “This amendment is applicable retrospectively from April 1, 2022, and thus applies to all the FTC claims furnished during the financial year 2022-2023. Thus, the taxpayers whose return filing due date under Section 139(1) has already expired, and they did not furnish Form 67 till now, can furnish it till March 31, 2023.”

Singh says, “This will benefit taxpayers by preventing loss of FTC permanently.” 

Things to keep in mind

These relaxed rules must, however, be used with caution. Suresh Surana, founder, RSM India says, “Though CBDT has relaxed the timeline for furnishing Form 67, taxpayers should ideally furnish it along with their returns, otherwise the processing of their returns and refund, if any, could get delayed.” 

Submitting Form 67 on the very last date could lead to practical challenges in e-verification. Surana adds, “Even if there is a substantial gap between the filing of tax return and the furnishing of Form 67, ensure there is no mismatch in the FTC amount claimed in the return and the amount mentioned in Form 67.”  

There is no option to revise Form 67 once it has been filed. Singh adds, “Form 67 can be submitted only through online mode on the income tax e-filing portal.” 

According to the new rule, a person who has not reported foreign income in the past two years may also claim FTC by filing an updated return. Provide Form 67 before filing the updated return. Due date of filing documents to claim FTC for updated return is on or before the date of filing of the return.

Documents to be furnished for claiming FTC

• Statement providing details of foreign income offered to tax for that year, tax paid abroad, or deduction on foreign income in Form 67 before filing of income-tax return
• Certificate or statement specifying the nature of income and the amount of tax paid or deducted on it
• This document could be provided by the tax authority of the foreign jurisdiction
• The person responsible for withholding tax could provide it
• The taxpayer could provide a self-declaration along with acknowledgement of online payment, bank counterfoil, or challan if he has paid it
• Proof of deduction if tax has been deducted
   

Source: RSM India