Unilateral Foreign Tax Relief

Section 160 — - COUNTRIES WITH WHICH NO AGREEMENT EXISTS (UNILATERAL FTC)

Section 160 is the substantive equivalent of 1961 s. 91 -- the UNILATERAL foreign tax credit provision for income earned in countries WITHOUT DTAA with India. The provision recognises that even absent a treaty, double-taxation relief should be available to Indian residents on a domestic-law basis. The mechanism: deduct from Indian tax on the doubly-taxed income an amount equal to the LOWER of (a) Indian tax rate × doubly-taxed income, or (b) Foreign tax rate × doubly-taxed income. Effectively a credit limited to the lower of two countries' rates. Rule 76 of the Income-tax Rules, 2026 prescribes the FTC computation methodology (rule 128 of the Income-tax Rules, 1962 under the 1961 Act). With 90+ DTAAs operational, s. 160 application is narrow -- typically for income from non-DTAA countries (some Caribbean / African / smaller jurisdictions).

STATUTORY ARCHITECTURE

FACT-PATTERN: Indian resident earns foreign-source income (e.g., royalty from non-DTAA country, business profit from non-DTAA country PE) -- that country taxes the income; India also taxes (s. 5(1) world-wide income basis). Without relief, full double-tax. Section 160 RELIEF METHODOLOGY: (i) DOUBLY-TAXED INCOME -- income taxed in BOTH foreign country and India. (ii) INDIAN TAX RATE -- Indian-tax-on-doubly-taxed-income / total-Indian-income (effective average rate). (iii) FOREIGN TAX RATE -- foreign-country tax-on-same-income / same-income amount. (iv) RELIEF = doubly-taxed income × LOWER OF [Indian rate, Foreign rate]. EFFECT: foreign tax is creditable up to limit of Indian tax on same income. If foreign rate < Indian rate -- full foreign tax credited; if foreign rate > Indian rate -- only Indian-rate-portion credited (residual foreign tax NOT refunded by India).

FORM NO. 44 (FORMERLY FORM 67) PROCEDURAL REQUIREMENT

Under rule 76(10) of the Income-tax Rules, 2026, credit is allowed on furnishing (a) a statement of foreign income offered to tax and foreign tax deducted or paid, in Form No. 44, and (b) a certificate or statement of the nature of income and the tax deducted or paid, from the foreign tax authority, the deductor or the assessee, with proof of payment or deduction (rule 76(11)). These must be furnished within twelve months from the end of the relevant tax year in which the income was offered to or assessed to tax, where the return was furnished under s.263(1) or (4) (rule 76(12)); for income included in an updated return under s.263(6), on or before the date that return is furnished (rule 76(13)). Form No. 44 must be verified by an accountant where the assessee is a company, or where foreign tax paid for the year is ₹1,00,000 or more (rule 76(16)). Under the 1961 Act the form was Form 67 under rule 128 of the Income-tax Rules, 1962, in force from 1 April 2017; as amended in 2022, rule 128(9) required it by the end of the assessment year where the return was filed under s.139(1) or (4).

CASE LAW / DEPARTMENTAL

(i) Tata Communications Ltd v. CIT (Bom HC) -- s. 91 vs s. 90 interaction; non-DTAA fallback. (ii) Before rule 128 of the Income-tax Rules, 1962 came into force on 1 April 2017, FTC was computed directly under s.91 of the 1961 Act; the rule then standardised it. (iii) Wipro Ltd. v. DCIT (2016) 382 ITR 179 (Kar), decided on 25 March 2015 -- income-tax paid to a State or local authority of a foreign country qualifies for relief under s.91 of the 1961 Act, although India's tax treaty is with the federal government, because "income-tax" in relation to any country includes tax charged by the Government of any part of that country or a local authority in it (Explanation (iv) to s.91; now s.160(3)(a) of the 2025 Act). (iv) Bank of Baroda v. ACIT (ITAT Ahmedabad) -- foreign-PE-profit FTC computation; rate-vs-amount considerations.

PRACTICAL POINTS

(i) DTAA vs s. 160 -- DTAA typically more favourable; s. 160 only for non-DTAA countries; this turns on the counterparty country's DTAA status. (ii) FORM NO. 44 -- due within twelve months from the end of the relevant tax year, or with an updated return (rule 76(12) of the Income-tax Rules, 2026 and (13)); the foreign tax certificate and proof of payment accompany it (rule 76(10)(b), (11)). (iii) RATE CALCULATION -- both the Indian (effective avg rate including surcharge / cess) and the foreign rate are computed; the lower applies. (iv) DOUBLY-TAXED INCOME ISOLATION -- foreign-source income is segregated from total income, with Chapter VIII deductions allocated proportionally where relevant. (v) MULTI-COUNTRY -- credit is computed separately for each source of income from each country (rule 76(7) of the Income-tax Rules, 2026); separate Form No. 44 entries per country; each foreign-tax payment is shown separately.

CROSS-REFERENCES

• Section 5(1) -- Resident world-wide income basis.
• Section 6 -- Residence determination.
• Section 159 -- DTAA framework (preferred over s. 160 where DTAA exists).
• Section 263(1) -- Return-filing due date.
• Rule 76 of the Income-tax Rules, 2026 -- FTC computation and documentation (formerly rule 128 of the Income-tax Rules, 1962).
• Form No. 44 -- FTC statement under rule 76(10)(a) of the Income-tax Rules, 2026 (formerly Form 67).
• Rule 128 of the Income-tax Rules, 1962 -- the FTC rule under the 1961 Act (Form 67), in force from 1 April 2017.