Foreign Tax Credit (FTC)

Foreign Tax Credit (FTC) – Foreign Tax Credit refers to the relief granted to a taxpayer in India for taxes paid on income earned in a foreign country. This credit ensures that the same income is not taxed twice — once abroad and again in India. The provisions for FTC are governed under Rule 128 of the Income Tax Rules, 1962. A resident taxpayer can claim credit for the amount of foreign tax paid, which is either equal to or less than the tax payable in India on that same income. To claim FTC, the taxpayer must submit Form 67 online before filing the Income Tax Return (ITR). The income earned in a Financial Year (FY) is assessed and taxed in the corresponding Assessment Year (AY).

Example: If an Indian resident earns income from the U.S. in FY 2022–23 and pays tax there, they can claim a Foreign Tax Credit while filing their return for AY 2023–24 in India to avoid double taxation