The Double Taxation Relief is provided when the assessee has paid taxes in a country that has a Double Taxation Avoidance Agreement (DTAA) with India.
Nidhi | Jun 18, 2025 |
NRI: Don’t file ITR before knowing Foreign Tax Credit and DTAA Relief!
Since the Income Tax Return filing season is here, here is all about the double taxation and foreign tax credit relief available to non-residents filing income tax returns (ITR) in India or residents who are having Income Outside India.
Double Taxation is when an Indian resident earns income, on which the person is liable to pay tax in India as well as in a foreign Country. This way, the income earned by the resident is taxed twice, which causes a loss to the income of such a person. Therefore, to avoid such taxation, a taxpayer can claim the Foreign Tax Credit on the income paid in a foreign country.
The Double Taxation Relief under the bilateral treaty is provided when the assessee has paid taxes in a country that has a Double Taxation Avoidance Agreement (DTAA) with India.
When the Indian Government has a Double Taxation Avoidance Agreement (DTAA) with another country, the rules in that agreement apply to taxpayers covered under it. If there is any difference between the DTAA and the Income Tax Act, then the rule that is more beneficial to the taxpayer will be followed.
However, in case the country in which the taxpayer has paid taxes has no DTAA with India, then Unilateral relief is provided on such double-taxed income. If there is a difference between the tax rate in India and the tax rate in the foreign country, the lower of the two will be allowed for deduction. If the rates are the same in both countries, then the Indian rate of tax shall be allowed for deduction from income tax.
DTAA has the following articles:
The amount you can claim as a foreign tax credit (FTC) shall be the lower of the Indian tax on the foreign income or the taxes paid in the foreign country on that income.
If the foreign tax paid is more than what is allowed under the DTAA, the extra amount will be ignored while calculating the tax credit. The relief is only available against the income tax, surcharge and cess payable under the Act and not against any interest payable, penalty or fee. India does not allow a foreign tax credit for any tax amount that is under dispute by the taxpayer.
The FTC amount must be calculated by converting the foreign currency to Indian Rupees by using the telegraphic transfer buying rate on the last date of the month before the month in which the foreign tax was paid or deducted. Telegraphic transfer buying rate is the buying rate used by the State Bank of India (SBI) at which it buys foreign currency through telegraphic transfer.
The taxpayer must have the following documents to claim the foreign tax credit:
To claim the foreign tax credit, the taxpayer should also have a Certificate or Statement mentioning the type of income and the amount of foreign tax deducted or paid by the taxpayer from the tax authority of the foreign country or the person who is responsible for the deduction. It should be signed by the taxpayer and must have the following:
As mentioned earlier, to claim the foreign tax credit, the taxpayer must furnish the statement in Form 67 electronically. Form 67 and the other required documents must be furnished on or before the end of the assessment year relevant to the previous year in which the income has been taxed or assessed. However, if the updated return has been filed under Section 139(8A), the documents must be submitted on or before the due date of filing such updated return.
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