Foreign Tax Credit in India: Meaning, Eligibility, Benefits and How to Claim It

When an Indian resident earns income from another country, that income may be subject to tax in both countries. For example, an Indian resident working overseas may pay income tax in the country where they work. However, if they are also required to report that income in India, they may have to pay tax here as well.

To reduce this burden, India provides a tax relief mechanism known as Foreign Tax Credit (FTC). It allows eligible taxpayers to claim credit for taxes paid in another country against their Indian tax liability on the same income, subject to prescribed conditions.

Foreign Tax Credit helps prevent the same income from being taxed twice. It is particularly useful for individuals working abroad, NRIs who become Indian residents, professionals receiving overseas income, investors, and businesses earning income from international sources.

This article explains the meaning of Foreign Tax Credit, how it works, who can claim it, the documents required, the filing procedure, and the rules taxpayers should understand before claiming the benefit.

What Is Foreign Tax Credit (FTC)?

Foreign Tax Credit is a tax relief mechanism that allows an eligible taxpayer to reduce their tax liability in India by claiming credit for income tax already paid in another country.

It is intended to provide relief when the same income is taxable in both India and a foreign country.

For example, suppose an Indian resident receives salary income from employment in another country. Tax is deducted from the salary in that country. If the individual is also required to include that income in their Indian income tax return, the same income may be taxed in India.

Without foreign tax relief, the taxpayer could face tax in both countries. Foreign Tax Credit helps reduce this additional burden.

The credit is generally limited to the lower of:

• The eligible foreign tax paid on the income.
• The Indian income tax payable on the same income.

The credit is subject to the relevant Double Taxation Avoidance Agreement (DTAA), where applicable, and Indian tax rules.

Why Is Foreign Tax Credit Important?

Foreign Tax Credit plays an important role in international taxation. It helps individuals and businesses manage tax obligations when income is earned across different countries.

Some important reasons why FTC is useful are explained below.

1. Prevents Double Taxation

The main purpose of Foreign Tax Credit is to prevent the same income from being taxed twice without appropriate relief.

For example, an Indian resident may earn interest income from a foreign bank and pay tax on that interest in the foreign country. If the same interest is taxable in India, FTC may help reduce the Indian tax liability.

2. Reduces the Overall Tax Burden

When eligible foreign tax is paid, the taxpayer may use the available credit to reduce the tax payable in India.

This can help avoid paying the full tax amount separately in both countries.

3. Supports International Employment

Many Indian professionals work in foreign countries or receive salary from overseas employers. They may have tax obligations in the country where they work and in India, depending on their residential status and the source of income.

FTC can provide relief when the same income is taxable in both countries.

4. Encourages Cross-Border Business Activities

Indian businesses may earn income from foreign customers, overseas projects, technical services, or international investments.

Foreign Tax Credit can help eligible businesses manage tax exposure when foreign income is also taxable in India.

5. Helps With International Investments

Indian residents may receive foreign dividends, interest, capital gains, or other investment income.

If tax is deducted or paid in another country and the income is also taxable in India, eligible FTC may be available.

6. Improves Tax Compliance

Claiming FTC requires taxpayers to report foreign income and foreign taxes correctly. This encourages proper documentation and accurate reporting of international income in Indian tax returns.

How Does Foreign Tax Credit Work in India?

Foreign Tax Credit works by allowing an eligible taxpayer to adjust foreign income tax paid against the Indian tax liability on the corresponding income.

The taxpayer must report the foreign income in India and satisfy the applicable conditions for claiming the credit.

The credit is generally restricted to the lower of the eligible foreign tax paid and the Indian tax payable on the same income.

Example of Foreign Tax Credit Calculation

Suppose an Indian resident earns income from another country and pays foreign tax on that income.

Consider the following example:

Particulars	Amount
Foreign income taxable in India	₹5,00,000
Tax paid in the foreign country	₹60,000
Indian tax payable on the same income	₹75,000
Eligible Foreign Tax Credit	₹60,000
Remaining Indian tax liability	₹15,000

In this example, the taxpayer has paid ₹60,000 as foreign tax and owes ₹75,000 as Indian tax on the same income.

The eligible credit is ₹60,000, which reduces the Indian tax liability to ₹15,000, assuming all other applicable conditions are satisfied.

Now consider another situation:

Particulars	Amount
Foreign income taxable in India	₹5,00,000
Tax paid in the foreign country	₹90,000
Indian tax payable on the same income	₹70,000
Eligible Foreign Tax Credit	₹70,000
Excess foreign tax	₹20,000

Here, the credit is limited to ₹70,000 because that is the Indian tax payable on the corresponding income.

The additional ₹20,000 paid abroad does not automatically become an extra credit in India.

Who Is Eligible to Claim Foreign Tax Credit in India?

Under India’s foreign tax credit framework, a resident taxpayer may claim credit for eligible foreign taxes paid on income that is also offered to tax or assessed in India.

The main eligibility conditions include the following:

1. The Taxpayer Must Be a Resident of India

Foreign Tax Credit under the general Indian rules is available to eligible resident taxpayers.

Residential status is determined under the applicable income tax provisions. It is important to check whether you qualify as a resident for the relevant tax year rather than assuming that citizenship or an Indian passport automatically determines your tax status.

2. The Taxpayer Must Have Foreign Income

The taxpayer must have earned income from a foreign country or specified territory.

Examples include:

• Salary from overseas employment
• Interest from foreign bank accounts
• Dividends from foreign companies
• Rental income from overseas property
• Business or professional income earned abroad
• Capital gains from foreign investments
• Royalty income
• Fees for technical services

The tax treatment depends on the nature of the income and the applicable tax rules.

3. Foreign Tax Must Have Been Paid or Deducted

The taxpayer must have paid foreign income tax or had tax deducted from the foreign income.

Proof of payment or deduction is generally required to support the claim.

4. The Foreign Income Must Be Taxable in India

The foreign income on which credit is claimed must also be offered to tax or assessed to tax in India.

If the income is not taxable in India, there may be no corresponding Indian tax liability against which FTC can be claimed.

5. The Taxpayer Must Submit the Required Information

The taxpayer must provide the prescribed foreign income and foreign tax details in the applicable form and maintain supporting documents.

For returns governed by the Income-tax Act, 1961, this generally involves Form 67 under Rule 128.

For tax years governed by the Income-tax Act, 2025, the corresponding procedure uses the prescribed form under the new rules.

What Is the Role of DTAA in Foreign Tax Credit?

A Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries designed to prevent or reduce double taxation of income.

India has entered into DTAAs with several countries. These agreements help determine which country has the right to tax particular types of income and how relief should be provided when the same income is taxable in both countries.

For example, an Indian resident may earn salary, interest, dividend, or royalty income from a country with which India has a DTAA.

The agreement may specify:

• Which country can tax the income
• Whether tax can be imposed in both countries
• The applicable withholding tax rate
• Which country must provide tax relief
• How double taxation should be eliminated

The exact provisions depend on the DTAA between India and the foreign country.

Foreign Tax Credit Under Section 90

For tax years governed by the Income-tax Act, 1961, Section 90 provides the framework for relief under agreements entered into by India with foreign countries or specified territories.

Where a DTAA applies, the taxpayer can claim relief according to the relevant agreement and Indian tax rules.

Foreign Tax Credit Under Section 90A

Section 90A deals with agreements entered into by specified associations in India with specified associations in other countries or territories, where the prescribed conditions are satisfied.

Foreign Tax Credit Under Section 91

If India does not have a DTAA with the foreign country, unilateral relief may be available under Section 91 of the Income-tax Act, 1961.

This provision allows eligible Indian residents to claim relief for certain foreign taxes paid on income that is also taxable in India.

The availability and calculation of relief depend on the conditions prescribed under the relevant provision.

What Is the Difference Between Foreign Tax Credit and DTAA?

Foreign Tax Credit and DTAA are closely connected, but they are not the same.

Basis	Foreign Tax Credit	DTAA
Meaning	Relief for eligible foreign tax paid on income also taxable in India	Agreement between two countries to address double taxation
Purpose	Reduces the Indian tax liability on eligible foreign income	Determines how income is taxed and how relief is provided
Applicability	Available under the applicable Indian tax provisions	Applies when India has an agreement with the foreign country
Coverage	Credit is subject to prescribed limits and conditions	Covers matters such as taxing rights, withholding rates, and relief
Documentation	Requires prescribed forms and proof of foreign tax	Requires reference to the relevant treaty provisions

In simple terms, a DTAA provides the agreement-based framework for avoiding double taxation, while Foreign Tax Credit is one of the methods through which eligible relief can be claimed.

What Is Form 67 for Foreign Tax Credit?

Form 67 is the prescribed statement used under Rule 128 of the Income-tax Rules, 1962, for reporting foreign income and foreign taxes paid when claiming Foreign Tax Credit.

It provides the Income Tax Department with details needed to verify the credit claimed by the taxpayer.

The form generally includes information such as:

• Name of the foreign country
• Source of foreign income
• Amount of income earned outside India
• Foreign tax paid or deducted
• Indian tax payable on the corresponding income
• Credit claimed under the applicable provisions
• Details of the relevant DTAA, where applicable

Form 67 is submitted electronically through the Income Tax Department’s e-filing portal.

Is Form 67 Mandatory?

For foreign tax credit claims governed by Rule 128, furnishing the prescribed information in Form 67 is an important requirement.

The taxpayer must also provide the required certificate or statement showing the nature of the income and the amount of foreign tax paid or deducted.

The applicable filing deadline should be checked for the relevant assessment year. Under the amended Rule 128, where the return is filed within the permitted original or belated filing period, Form 67 and supporting documents are generally required by the end of the relevant assessment year. For income included in an updated return, the related information must be furnished by the date of filing that updated return.

Which Form Applies From 1 April 2026?

India’s new Income-tax Act, 2025 and Income-tax Rules, 2026 came into effect from 1 April 2026.

Therefore, taxpayers should distinguish between the two filing frameworks:

• FY 2025–26 / AY 2026–27: Foreign Tax Credit claims continue under the Income-tax Act, 1961, Rule 128, and Form 67.
• Tax years beginning from 1 April 2026: The new framework under the Income-tax Act, 2025 and Income-tax Rules, 2026 applies. Foreign Tax Credit is covered by Rule 76, with Form 44 prescribed for the relevant claim.

Always select the form and filing procedure applicable to the tax year for which the credit is being claimed.

How to Claim Foreign Tax Credit in India

Claiming Foreign Tax Credit requires proper reporting of foreign income and tax paid abroad.

The following steps explain the general process.

Step 1: Check Your Eligibility

First, determine whether you qualify to claim FTC.

Check your residential status, the nature of your foreign income, whether the income is taxable in India, and whether foreign tax has actually been paid or deducted.

Also identify whether India has a DTAA with the country from which the income was earned.

Step 2: Calculate Your Foreign Income

Identify the income earned outside India during the relevant tax year.

Depending on the nature of the income, it may include salary, interest, dividends, rent, capital gains, business income, or professional receipts.

Convert the income into Indian rupees using the exchange rate prescribed under the applicable tax rules.

Step 3: Calculate Foreign Tax Paid

Collect details of the tax paid or deducted in the foreign country.

The amount should be supported by tax certificates, official receipts, withholding statements, or other acceptable evidence.

If the foreign tax has been disputed, special conditions may apply before credit can be claimed.

Step 4: Check the Applicable DTAA

If India has a DTAA with the foreign country, review the relevant treaty provisions.

The treaty may specify the country’s taxing rights, the permitted tax rate, and the method of providing relief.

If no DTAA exists, check whether unilateral relief is available under the applicable Indian provisions.

Step 5: Calculate the Eligible Foreign Tax Credit

Calculate the Indian tax payable on the corresponding foreign income.

Compare this amount with the eligible foreign tax paid. The credit is generally limited to the lower amount, subject to the applicable treaty and domestic rules.

Step 6: Prepare the Prescribed Form

For tax years governed by the Income-tax Act, 1961, prepare Form 67 with the required foreign income and tax details.

For tax years governed by the Income-tax Act, 2025, use the applicable form under the new rules.

Step 7: Submit the Form Online

Log in to the official Income Tax e-filing portal.

For Form 67, the general procedure is:

1. Visit the Income Tax e-filing portal.
2. Log in using your PAN and password.
3. Select the e-File section.
4. Open Income Tax Forms.
5. Select File Income Tax Forms.
6. Search for Form 67.
7. Select the relevant assessment year.
8. Enter the foreign income and tax details.
9. Attach the required supporting documents.
10. Submit and e-verify the form.

The portal’s process and available options may vary depending on the form and tax year.

Step 8: File Your Income Tax Return

Report the foreign income under the correct income head in your Indian income tax return.

Also disclose the relevant foreign tax credit details in the appropriate schedules.

Foreign assets and foreign income may require additional disclosures, depending on your residential status and the applicable reporting requirements.

Step 9: Maintain Supporting Documents

Keep copies of the submitted form, foreign tax payment evidence, income statements, and relevant tax records.

These documents may be needed if the Income Tax Department asks for clarification or verifies the credit claim.

Documents Required to Claim Foreign Tax Credit

Proper documentation is important when claiming FTC. The taxpayer must be able to establish the nature of the foreign income and the amount of tax paid or deducted abroad.

The commonly required documents include the following.

1. Proof of Foreign Income

Documents showing the income earned outside India may include:

• Salary slips
• Employment contracts
• Foreign bank interest statements
• Dividend statements
• Rental income records
• Business income statements
• Investment statements
• Capital gain statements

2. Foreign Tax Payment Receipts

If you paid tax directly to a foreign tax authority, retain official payment receipts, challans, bank acknowledgements, or other accepted proof.

3. Foreign Tax Deduction Certificates

If tax was deducted by an overseas employer, bank, company, or another entity, obtain a certificate or statement showing the amount deducted.

4. Foreign Income Tax Return

A copy of the income tax return filed in the foreign country can help support the FTC claim, where applicable.

5. Form 67 or the Applicable Foreign Tax Credit Form

Keep the acknowledgement of Form 67 for claims under the old framework or the acknowledgement of the applicable prescribed form under the new framework.

6. Proof of Indian Tax Payment

Maintain details of advance tax, self-assessment tax, TDS, or other tax payments relevant to the Indian return.

7. Communication With Foreign Tax Authorities

Any correspondence relating to foreign tax assessments, refunds, disputes, or payments may also be relevant.

Maintaining complete records can make it easier to substantiate your claim if it is examined by the tax authorities.

Important Rules and Restrictions on Foreign Tax Credit

Foreign Tax Credit is subject to several conditions. Paying tax in another country does not automatically mean that the entire amount can be claimed as credit in India.

Some important restrictions are explained below.

1. Credit Is Limited to Eligible Foreign Tax

The credit is generally restricted to the lower of the eligible foreign tax paid and the Indian tax payable on the corresponding income.

Any excess foreign tax does not automatically become an additional Indian tax credit.

2. Credit Is Calculated Separately for Each Income Source and Country

Under Rule 128, the credit is calculated separately for each source of income arising from a particular foreign country or specified territory.

This means that taxpayers should not simply combine all foreign taxes and claim one overall credit without applying the prescribed calculation.

3. Credit Is Not Available Against Interest, Fees or Penalties

Under the old Rule 128 framework, FTC is available against eligible Indian tax, surcharge, and cess. It is not available against interest, fees, or penalties payable under the Income-tax Act.

The corresponding rules under the new framework should be checked for the relevant tax year.

4. Disputed Foreign Tax Has Special Conditions

If the foreign tax paid is disputed by the taxpayer, credit is generally not available for that disputed amount until the prescribed conditions are satisfied.

Credit may become available after the dispute is finally settled, subject to submitting the required evidence and meeting the applicable time limit.

5. Foreign Tax Must Relate to Income Taxable in India

FTC cannot generally be claimed simply because a payment was made to a foreign government.

The payment must qualify as foreign income tax under the applicable provisions and relate to income that is also taxable in India.

6. Proper Currency Conversion Is Required

Foreign income and tax paid abroad must be converted into Indian rupees using the exchange rate prescribed under the applicable tax rules.

Under Rule 128, the foreign tax credit calculation uses the prescribed telegraphic transfer buying rate for the relevant month.

7. Refunds of Foreign Tax May Affect the Credit

If foreign tax for which credit was previously claimed is subsequently refunded, the taxpayer may need to report the refund and make the required adjustments under the applicable provisions.

Difference Between Foreign Tax Credit and Tax Deduction

Foreign Tax Credit and tax deductions both help reduce the amount of tax payable, but they work differently.

Basis	Foreign Tax Credit	Tax Deduction
Meaning	Credit for eligible foreign income tax already paid	Reduction in taxable income
Purpose	Prevents double taxation	Reduces taxable income under eligible provisions
Calculation	Generally based on foreign tax paid and Indian tax on the same income	Based on the eligible amount of expenditure or investment
Effect	Reduces tax payable directly	Reduces the income on which tax is calculated
Example	Credit for eligible tax paid abroad	Deduction for eligible investments or expenses

For example, if a taxpayer qualifies for a deduction of ₹50,000, that amount may reduce taxable income. However, if the taxpayer qualifies for an FTC of ₹50,000, the credit may directly reduce the eligible Indian tax liability by that amount.

Common Mistakes to Avoid When Claiming Foreign Tax Credit

Taxpayers may face difficulties when claiming FTC because of incorrect reporting or missing documentation.

Some common mistakes include:

1. Not reporting foreign income: Foreign income that is taxable in India should be properly disclosed in the return.
2. Claiming excess credit: The credit should be calculated according to the applicable limits.
3. Ignoring DTAA provisions: The relevant treaty should be checked before calculating relief.
4. Using incorrect exchange rates: Foreign income and tax should be converted using the prescribed method.
5. Not submitting the prescribed form: The applicable FTC form should be filed within the required time.
6. Keeping incomplete records: Tax payment certificates and income statements should be retained.
7. Claiming credit for non-qualifying taxes: Not every foreign payment or levy qualifies as income tax for FTC purposes.
8. Ignoring foreign asset disclosures: Taxpayers who are required to report foreign assets should complete the relevant disclosures separately.
9. Failing to account for foreign tax refunds: A later refund of foreign tax may require an adjustment to the earlier credit claim.

Reviewing these details before filing can help reduce errors and avoid unnecessary questions from the tax authorities.

When Should You Seek Professional Assistance?

Foreign Tax Credit claims can become complicated when income is earned in multiple countries or when different types of income are involved.

Professional assistance may be useful in situations such as:

• Salary earned in more than one country
• Foreign investments and dividend income
• Income from overseas property
• International business transactions
• Foreign tax refunds
• Disputed foreign tax payments
• DTAA interpretation
• Foreign capital gains
• Changes in residential status
• Foreign asset reporting
• Multiple-year FTC claims

A qualified tax professional can review the applicable treaty, calculate the eligible credit, prepare the required forms, and ensure that foreign income is correctly disclosed in the Indian return.

Frequently Asked Questions (FAQs)

1. What is Foreign Tax Credit in India?

Foreign Tax Credit is a tax relief mechanism that allows eligible Indian residents to claim credit for income tax paid in another country against their Indian tax liability on the same income. It helps reduce double taxation, subject to applicable conditions and limits.

2. Who can claim Foreign Tax Credit in India?

Eligible Indian residents who earn foreign income, pay tax on that income abroad, and offer the corresponding income to tax in India may claim FTC. The taxpayer must also satisfy the applicable documentation and filing requirements.

3. Is Foreign Tax Credit available under a DTAA?

Yes. Foreign Tax Credit may be available under the relevant DTAA between India and the foreign country. The agreement determines the applicable relief and the treatment of different income categories.

4. Can I claim Foreign Tax Credit if India does not have a DTAA with the foreign country?

Yes, unilateral relief may be available under Section 91 of the Income-tax Act, 1961, if the taxpayer and income satisfy the prescribed conditions.

5. What is Form 67?

Form 67 is the prescribed statement under Rule 128 of the Income-tax Rules, 1962, used to report foreign income and foreign tax paid when claiming FTC under the old tax framework.

6. Is Form 67 mandatory for claiming Foreign Tax Credit?

For claims governed by Rule 128, the prescribed information must be furnished in Form 67 along with the required supporting evidence. For tax years governed by the new tax framework from 1 April 2026, taxpayers should use the applicable prescribed form instead.

7. Can I claim the full amount of tax paid in a foreign country?

Not necessarily. The credit is generally limited to the lower of eligible foreign tax paid and Indian tax payable on the corresponding income. DTAA provisions and other statutory restrictions may also affect the calculation.

8. Can NRIs claim Foreign Tax Credit in India?

Foreign Tax Credit under the general Indian framework is available to eligible residents. An individual classified as a non-resident is generally taxed in India according to the applicable rules for non-residents and may not qualify for FTC under the resident-specific provisions. Residential status must be determined for the relevant year.

9. Can I claim Foreign Tax Credit on foreign salary?

An eligible Indian resident who earns salary abroad and pays income tax in the foreign country may claim FTC if the same salary income is also taxable in India and all prescribed conditions are satisfied.

10. Is Foreign Tax Credit available for foreign dividend income?

It may be available where dividend income is taxable in India and eligible foreign income tax has been paid or deducted on that income. The applicable DTAA and domestic rules should be reviewed.

11. What happens if foreign tax paid is more than Indian tax payable?

The credit is generally limited to the Indian tax payable on the corresponding income. The excess foreign tax does not automatically become an additional credit in India.

12. Can I claim Foreign Tax Credit without proof of foreign tax payment?

A valid FTC claim requires supporting evidence of the nature of foreign income and the tax paid or deducted. Without adequate documentation, the taxpayer may face difficulties substantiating the claim.

13. Is Foreign Tax Credit available for interest or penalties?

Under Rule 128 of the Income-tax Rules, 1962, FTC cannot be used against interest, fees, or penalties payable under the Act. It is available against eligible tax, surcharge, and cess, subject to the prescribed conditions.

14. What is the deadline for submitting Form 67?

Under the amended Rule 128, where the return is filed within the permitted original or belated filing period, Form 67 and the supporting documents are generally required by the end of the relevant assessment year. For income included in an updated return, the related documents must be furnished by the date of filing that return.

15. What form is used to claim Foreign Tax Credit from April 2026?

For tax years governed by the Income-tax Act, 2025 and Income-tax Rules, 2026, Foreign Tax Credit is covered by Rule 76 and Form 44 is the prescribed form. Form 67 continues to be relevant for claims governed by the earlier tax framework.

Conclusion

Foreign Tax Credit is an important tax relief mechanism for Indian residents who earn income from overseas sources. It helps reduce the tax burden when the same income is taxable in both India and another country.

To claim this benefit, taxpayers must determine their residential status, report foreign income correctly, calculate the eligible foreign tax, review the relevant DTAA provisions, and submit the prescribed form with supporting documents.

It is equally important to understand the restrictions on FTC, including the limit on the amount of credit, the treatment of disputed foreign tax, and the requirements for currency conversion and foreign income reporting.

Since India’s income tax framework changed from 1 April 2026, taxpayers should also ensure that they use the correct rules and forms for the relevant tax year. Maintaining proper records and seeking professional guidance for complex international tax matters can help ensure accurate reporting and a valid Foreign Tax Credit claim.

Disclaimer

This content is for informational purposes only and reflects provisions of the Income Tax Act as amended up to FY 2025–26. Please consult a Chartered Accountant for professional advice.

Written by

Asha Ahuja Sethi (Head Admin at Jatin Sethi & Co., Chartered Accountants)