FOREIGN TAX CREDIT & CONVERSION RULES

WHAT IS FOREIGN TAX CREDIT?

Foreign tax credit (FTC) is tax paid in foreign country on income derived in foreign country by an assessee. It can also be tax deducted at source in the foreign country on the source of income generated by a resident in foreign country. Such amount of tax which is paid/ deducted in foreign country can be claimed as credit against the tax liability in the country of resident. (Section 90, 90A, 91).

IN WHICH YEAR THE CREDIT IS AVAILABLE?

The credit of FTC is available in the year in which the income corresponding to such tax has been offered to tax in India. In case the income corresponding to such tax is offered to tax in India in multiple years, the FTC shall be claimed across these years in the same proportion in which the income is offered to tax.

AGAINST WHICH LIABILITY CREDIT CAN BE CLAIMED?

The FTC can be claimed against the amount of Income Tax, Surcharge and cess liability. It, however, cannot be claimed against any liability on account of interest, fee or penalty payable under the Income Tax Act.

If foreign tax paid is disputed in any manner, the same will be allowed in the year of offering income only if the assessee within 6 months from the end of month in which dispute is settled, furnishes evidence of settlement of dispute, payment of disputed tax.

WHAT IS THE MECHANISM TO COMPUTE THE AMOUNT OF FTC AVAILABLE?

The FTC shall be computed for each source of income arising from each country. The credit allowable shall be lower of tax payable under the Income Tax Act on such income and actual foreign tax paid on such income. In case where the foreign tax paid exceeds the amount of tax payable according to the DTAA, such excess shall be ignored.

WHAT DOCUMENTS ARE REQUIRED TO CLAIM FTC?

A statement of computation of Income of that country outside India and foreign tax deducted or paid on such income in Form No. 67;

A certificate or statement specifying the Nature of Income and the manner of tax deducted therefrom or paid by the assessee from-

• The tax authority of that country or

• The person responsible for deduction of such tax or

• The assessee.

In such case, the assessee also need to provide Acknowledgement of online payment of tax or challan for payment of tax where the payment has been made by the assessee

WHETHER THE FTC CAN BE CLAIMED IF TAX IS PAYABLE UNDER MAT OR AMT?

Yes, FTC shall be allowed against tax payable under MAT/ AMT in the same manner as it is allowable under normal provisions of the Income Tax Act.

However, where the FTC available against tax payable under MAT/ AMT exceeds the tax credit available under normal provisions of the Act, the excess shall be ignored.

WHAT CONVERSION RATE SHOULD BE ADOPTED?

For the purpose of converting foreign currency into Indian Rupees, TTBR of SBI on the last day of the previous month in which the tax has been paid or deducted shall be adopted.

WHAT IS THE TIMELINE TO SUBMIT THE CLAIM OF FTC?

Form No. 67 and a certificate or statement as referred above shall be furnished online up to due date of u/s 139(1).

Provided that where the return has been furnished u/s 139(8A), the statement in Form No. 67 and the certificate or the statement to the extent it relates to the income included in the updated return, shall be furnished on or before the date on which such return is furnished.

CONVERSION OF FOREIGN INCOME INTO INDIAN CURRENCY

Rule 115: Rate of exchange for conversion into rupees of income earned in foreign currency shall be the TTBR as on the specified date.

Specified date means: –

(a)Salary Income – last day of the month immediately preceding the month in which the salary is due or is paid or in arreares.

(b)Interest on securities – last day of the month immediately preceding the month in which the income is due.

(c)Income from house property, PGBP income – (other than point (d)) and IFOS (not being income by way of dividends and Interest on securities) – the last day of the previous year of the assessee.

(d)PGBP in the case of a NR engaged in the business of operation of ships – last day of the month immediately preceding the month in which such income is deemed to accrue or arise in India.

(e)Dividends – last day of the month immediately preceding the month in which dividend is declared, distributed or paid by the company.

(f)Capital gains – the last day of the month immediately preceding the month in which the capital asset is transferred.

Note: Provided that the specified date, in respect of income referred to in (a) to (f) payable in foreign currency and from which tax has been deducted at source under rule 26, shall be the date on which the tax was required to be deducted under TDS chapter.

Rule 26- Rate of exchange for the purpose of TDS at source on income payable in foreign currency

For the purpose of deduction of tax at source on any income payable in foreign currency, the rate of exchange for the calculating of the value in rupees of such income payable –

(i)To an assessee outside India.

(ii)To a unit of IFSC.

(iii)By a unit of IFSC to an assessee in India.

Shall be the TTBR of such currency as on the date on which the tax is required to be deducted at source under the TDS chapter by the person responsible for paying such income.

Nayan Saluja & Company

FOREIGN TAX CREDIT & CONVERSION RULES