To provide relief to corporates with income abroad, the tax department has notified ‘Foreign Tax Credit’ rules allowing companies to claim credit for taxes, surcharge and cess paid overseas.
The rules, which come into effect from April 1, 2017, allow taxpayers to claim credit of foreign tax under dispute once it is finally settled.
Foreign tax credit (FTC) will be available against tax, surcharge and cess payable under the Act, including minimum alternate tax (MAT) but not in respect of interest, fee or penalty.
The rules also provide that disputed foreign tax will be allowed as credit for the year in which the income is taxed in India, subject to certain conditions.
To avail of the credit, the taxpayer will have to furnish evidence of settlement of the dispute and evidence of payment of the foreign tax. The taxpayer is also required to provide an undertaking that no refund, directly or indirectly, will be claimed for this foreign tax.
“The rules are progressive and provide much-needed clarity as well as certainty in claiming FTC,” said Rakesh Nangia, Managing Partner, Nangia & Co.
Taxpayers claiming FTC shall now be required to file a Statement of Income from a foreign country with details of tax paid in the prescribed Form 67.
“Rules also provide for situations of carry backward of loss of the current year resulting in refund of foreign tax,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
The Central Board of Direct Taxes (CBDT) has also allowed tax payers to give self-certified statement, giving the nature of income and the amount of foreign tax deducted or paid accompanied with the counterfoil or acknowledgment of taxes paid and/or proof of taxes having been deducted at source, for claiming FTC.
“This process is much simpler than the complex and difficult procedure involving obtaining a certificate from a foreign tax authority,” Nangia said.
The tax credit, the rule said, “shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory outside India”.