Providing major relief to taxpayers in the matter of claiming Foreign Tax Credit (FTC), the Central Board of Direct Taxes (CBDT) has amended Rules 128 of the Income Tax Rules 1962. Before the amendment, taxpayers could claim FTC only by filing Form 67 along with necessary documents within the due date for Income Tax Return (ITR) filing. This rule has now been changed.

Rule 128 allows an Indian resident to claim credit for the amount he/she has paid as tax in a foreign country or specified territory outside India. More than 6 crore ITRs have been filed till now for Assessment Year, 2022-23, according to the Income Tax e-filing portal.

Here are 5 points taxpayers should know about the new FTC rule:

  • As per the amended rule, taxpayers can now claim credit for taxes paid outside India before the end of the Assessment Year if the ITR has been filed within the stipulated due date. “The Statement in Form No. 67 can now be furnished on or before the end of the relevant Asstt Year. Notification No. 100/2022 issued,” the Income Tax Department said in a tweet dated 19 August 2022.
  • With the implementation of the new rule, taxpayers can claim FTC even while filing an updated return of income if they have furnished Form 67 before filing such a return, according to tax experts.
  • The new rule will ensure that taxpayers don’t permanently lose FTC if they fail to file Form 67 within the due date of filing of ITR.
  • The new rule will apply retrospectively to benefit all FTC claims filed during the current financial year. “The pre-amended Rule required the FTC claim to be filed by the due date of furnishing the Income Tax Return. The amendment operates retrospectively so that this benefit is available to all FTC claims filed during the current Financial Year,” the Tax Department said.
  • According to experts, the previous rule created a challenge for Indian residents who incurred foreign taxes while earning abroad but their foreign tax returns were not finalised by the ITR due date in India.

The new rule is effective from 01 April 2022. So taxpayers, who need to claim FTC for FY 2021-22, can now file Form 67 and supporting documents till March 2023.

Meanwhile, the Ministry of Finance has notified new overseas investment rules and regulations in a bid to further enhance the Ease of Doing Business.

Also Read: How to show dividends, capital gain taxation in ITR

“In view of the evolving needs of businesses in India, in an increasingly integrated global market, there is need of Indian corporates to be part of global value chain. The revised regulatory framework for overseas investment provides for simplification of the existing framework for overseas investment and has been aligned with the current business and economic dynamics. Clarity on Overseas Direct Investment and Overseas Portfolio Investment has been brought in and various overseas investment-related transactions that were earlier under approval route are now under the automatic route,” the Ministry of Finance said in a statement dated 22 August 2022.