Foreign Tax Credit

Foreign Tax Credit (FTC) is a mechanism that allows taxpayers to reduce their tax liability in India by claiming a credit for taxes paid to foreign governments on income earned abroad. The purpose of FTC is to prevent double taxation of the same income in both the country of origin and the country of residence.

Legal Framework for FTC in India:

The Foreign Tax Credit system in India is governed by Section 90 and Section 91 of the Income Tax Act, 1961. Section 90 deals with the agreements between India and foreign countries, while Section 91 deals with the cases where no agreement exists. India has signed Double Taxation Avoidance Agreements (DTAAs) with over 100 countries. These agreements provide a framework for the allocation of taxing rights between the contracting countries and prevent double taxation of the same income. The provisions of the DTAAs prevail over the domestic tax laws of the contracting countries.

Eligibility for FTC in India

FTC is available to residents of India who have paid taxes to foreign governments on their foreign income. The credit is available for taxes paid on income from any source, including business income, capital gains, and employment income.

Limitations on FTC in India

The FTC is subject to certain limitations in India. The credit is limited to the amount of tax payable in India on the same income. If the tax paid in the foreign country is higher than the tax payable in India, the excess amount cannot be claimed as a credit. Additionally, FTC is not available for taxes paid on income that is exempt from tax in India.

Claiming FTC in India

To claim the credit, the taxpayer must provide proof of tax paid in the foreign country, such as a tax receipt or a certificate of tax paid. The FTC can be claimed by filing Form 67 along with the income tax return. The form requires the taxpayer to provide details of the foreign income and taxes paid on the same. The taxpayer must also provide details of the DTAAs applicable, if any.


The Foreign Tax Credit system in India promotes international trade and investment by ensuring that income is not subject to double taxation. Taxpayers who earn income from foreign sources should carefully consider the availability of the FTC and claim the credit wherever applicable.

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