Foreign tax credit

Basic credit (sub-rules 1 to 4).

• A resident is allowed credit for foreign tax paid in a country or specified territory outside India, by deduction or otherwise, in the tax year in which the corresponding income is offered or assessed to tax in India.
• If the income is offered to tax in more than one tax year, credit is allowed across those years in the same proportion.
• "Foreign tax" is the tax covered by the agreement, for a country with a double taxation agreement under section 159; for any other country, the tax in the nature of income-tax referred to in section 160(3)(a).
• The credit is available against tax, surcharge and cess payable under the Act, but not against interest, fee or penalty.

Disputed foreign tax (sub-rules 5, 6 and 15). No credit is available for foreign tax the assessee disputes. If, within six months from the end of the month in which the dispute is finally settled, the assessee furnishes evidence of settlement, evidence that the liability was discharged, and an undertaking that no refund has been or will be claimed, the credit is allowed for the year in which the income was offered or assessed to tax. The intimation is in Form No. 45, with evidence of the settlement and payment.

How the credit is computed (sub-rules 7 to 9). Credit is computed separately for each source of income from a particular country or territory, and is the lower of the tax payable under the Act on that income and the foreign tax paid on it; foreign tax above what the agreement allows is ignored. Currency is converted at the telegraphic transfer buying rate on the last day of the month before the month in which the tax was paid or deducted. Where tax is payable under section 206, credit is allowed against it as against tax under the normal provisions, and excess credit against section 206 is ignored when computing credit under the clauses of section 206 the rule lists.

Documents and deadlines (sub-rules 10 to 14). Credit is allowed on furnishing (a) a statement of the foreign income offered to tax and the foreign tax on it in Form No. 44, and (b) a certificate or statement of the nature of income and tax from the foreign tax authority, from the person who deducted the tax, or signed by the assessee. The certificate or statement is valid if accompanied by proof of payment (an online payment acknowledgement, bank counterfoil or challan) or proof of deduction. Both are furnished within twelve months from the end of the tax year in which the income was offered or assessed, with the return furnished in time under section 263(1) or (4); for an updated return under section 263(6)(a), on or before the date it is furnished. Form No. 44 is also furnished if a carry-back of loss, a revision or any other reason results in a refund of foreign tax for which credit was claimed.

Who verifies (sub-rules 16 and 17). Form No. 44 is verified by an accountant under section 515(3)(b) where the assessee is a company, or in other cases where the foreign tax paid in the year is one lakh rupees or more. Form No. 45 is verified by an accountant where Form No. 44 for the year had to be.

Definition (sub-rule 18). "Telegraphic transfer buying rate" has the meaning in rule 207.