Introduction:

When a resident taxpayer receives income from another state, the foreign state generally withholds the tax. In such cases, the taxpayer still pays taxes in the state of residence. Residents can, however, apply for relief by applying for withheld foreign tax credits. This can be done by filing Form 67 with the Income Tax Department.

To avail the tax credit, residents are required to file Form 67 before the last date for filing their Income Tax Return (ITR). In addition, a Form 67 must be filed if a foreign tax return resulting in a loss from the current year resulted in a credit claim in any of the prior years.

Form 67:

Form 67 remains an important document required for taxpayers to declare their foreign tax liability (FTC). According to Income Tax Rule 128(9), Form 67 must be filed before the end of the assessment year before the original return under section 139(1) or return the latter under section 139(4) has been submitted, for this year 2024 -25. Form 67 is required to be filed by December 31, 2024 to claim the tax credit.

Foreign Tax Credit :

The Foreign Tax Credit is a scheme provided by the Government of India, which enables individuals to avail relief or tax on income earned outside the borders of India

Consider a scenario where a taxpayer resides in Country X  and earns income from Country Y . Country Y withholds taxes on the income received by the taxpayer in that jurisdiction. Additionally, Country X, in accordance with its tax regulations, taxes the taxpayer on their global income, which encompasses income earned from Country Y as well.

This situation could lead to double taxation of the taxpayer’s income, with taxes imposed both in the Source State and the Residence State. To mitigate this issue, tax laws in different countries often incorporate a mechanism where the Residence State permits a deduction of taxes paid in the Source State from the total tax liability within the Residence State.

Claiming the Foreign Tax Credit :

• India’s tax laws, specifically sections 90 and 91 of the Income Tax Act, regulate the Foreign Tax Credit (FTC). Section 90 covers FTC claims when India has a Double Taxation Avoidance Agreement (DTAA) with another nation, while Section 91 applies when no DTAA exists with the country of income origin. Residents can offset foreign taxes paid against their Indian tax liability under these provisions.
• Foreign Tax Credit (FTC) is permitted in the year when the income associated with such tax is either included or assessed for taxation in India.
• Foreign Tax Credit (FTC) will not be accessible if the foreign tax is under dispute.
• The FTC will have individually calculated credit amounts for each source of funds from a particular country.
• FTC will be computed by converting the currency used for payment of the foreign tax at the Telegraphic Transfer Buying Rate prevailing on the last day of the month immediately preceding the month in which the tax was paid or deducted.
• FTC will be calculated as the lower of the tax payable on such income under Indian tax laws and the amount of foreign tax paid.
• FTC is applicable even on the tax payable under Section 115JB (Minimum Alternate Tax).
• The FTC can be used against taxes, levies and cesses due under the Indian tax laws, but cannot be used against interest, charges or penalties.

Contents Of Form 67:

• Form 67 contains the following four sections.
• Part A of Form 67 includes essential information such as name, PAN or Aadhaar number, address, assessment year, income details from a foreign country, and claimed foreign tax credit.
• Part B of Form 67 comprises information regarding the refund of foreign tax resulting from the carryback of losses and disputed foreign tax.
• Verification – This section includes a self-declaration form in accordance with the Income Tax Rules, 1962.
• Attachment – The last section requires the taxpayer to provide a copy of the certificate or statement, as well as proof of payment or deduction of the foreign tax.

How to File Form 67:

• Form 67 must be completed and submitted online by taxpayers who are required to file income tax returns electronically.
• This form can be accessed through the taxpayer’s account on the e-filing portal of the income tax department.
• You must use a Digital Signature Certificate (DSC) or an Electronic Verification Code (EVC) to submit Form 67, both of which are mandatory.
• Form 67 must be submitted before filing the income tax return.

Steps To Fill Form 67:

• Step 1: Access the Income Tax e-Filing portal by logging in with your user ID and password.
• Step 2: Go to ‘e-File’ section of the dashboard, then click on ‘Income Tax Forms’ followed by ‘File Income Tax Forms’.
• Step 3: On the next page, select ‘Persons not dependent on any Source of income’, go to the next sub-page and click on ‘File Now’ next to ‘Double Taxation Relief (Form 67)’ . . . .
• Step 4: Choose the ‘Assessment Year (AY)’ and then click on ‘Continue’.
• Step 5: Proceed to the instructions page and click on ‘Let’s Get Started’.
• Step 6: Fill in the required information in Form 67, then click on ‘Preview’.
• Step 7: Verify the information and make sure you have uploaded supporting documents or proof of tax, then click ‘Proceed to e-Verify’.
• Step 8: Click ‘Yes’ on the confirmation message to confirm your submission.
• Step 9: You will be redirected to the e-verification page. If e-verification is successful, a success message will be displayed, along with the transaction ID and recognition number.
• Make sure to record the transaction ID and acknowledgment for future reference. Additionally, a confirmation message will be sent to the email ID registered on the e-Filing portal.

Documents Required:

• To file an FTC return, the taxpayer must provide the following documents on or before the due date for the return:
• A statement of foreign income subject to taxation
• A statement of foreign tax deducted or paid on such income as per Form No. 67
• A certificate or statement showing the income and the amount of tax to be deducted or paid by the taxpayer From either the tax authority of the foreign country or the person responsible for deducting such tax, and signed by the taxpayer.
• Proof of payment of tax outside India.

Due Date:

• If the assessee has filed an updated return under Section 139(8A), Form 67 (related to income included in the updated return) must be submitted on or before the date of filing the updated return.
• The modification, effective from April 1, 2022, applies to all FTC claims submitted throughout the fiscal year 2022-2023.

Conclusion:

Form 67 constitutes a crucial declaration for individuals seeking tax relief under the provisions of DTAA. Recent judicial decisions have seen tribunals permitting late submissions of Form 67, despite no explicit provision for such allowances in income tax regulations. Provisions like Section 90/90A/91 play a significant role, enabling individuals earning abroad to seek tax relief in their source or resident country as per income tax regulations.