In what could give relief from double taxation to corporates as well as individuals with overseas income, the Central Board of Direct Taxes (CBDT) on Monday issued draft guidelines under which Indian taxpayers would be allowed to claim foreign tax credit (FTC) against their domestic tax, cess and surcharge liability.
In the draft rules for grant of FTC, the CBDT proposed that Indian taxpayers could also offset taxes paid overseas against their domestic minimum alternate tax (MAT) liability.
The board has sought public comments on the proposed guidelines until May 2, 2016.
“The credit for foreign tax shall be available against the amount of tax, surcharge and cess payable under the Act but not in respect of any sum payable by way of interest, fee or penalty,” according to the draft rules.
Tax experts said the draft rules could provide clarity and certainty. “This draft is a well-thought out move to clarify the nature and conditions for availability of FTC to Indian taxpayers,” said Sudhir Kapadia, National Tax Leader, EY India.
In the Budget in 2015, an enabling provision was introduced to notify rules in respect of granting FTC. However, the framing of rules, that would give certainty on these aspects, were delayed.
Absence of such regulations hindered the claim of such pre-paid taxes, leading to disallowance of foreign tax credits, often, on frivolous grounds, which was not in the spirit of double taxation avoidance agreements (DTAA). Tax payers could also claim FTC even for the taxes paid in countries with whom India does not have a tax avoidance pact.
However, no credit would be available in respect of any amount of foreign tax which is disputed in any manner by the assessee, the CBDT draft said. Also, the tax payers would have give required proofs of foreign taxes paid to Indian authorities.