How NRIs and Foreign Income Earners Can Claim Foreign Tax Credit in India

The growing number of people moving across borders and freelancing has led to an increase in Indians earning foreign income. The situation of double taxation affects foreign income earners who live in India after becoming residents since they must pay taxes both in India and their foreign countries.

Indian residents can benefit from Foreign Tax Credit (FTC) rules which let them claim back taxes paid abroad. The system prevents paying taxes on the same income twice to ensure no duplicate taxation occurs. The following explanation explains how Foreign Tax Credit works and shows you how to submit Form 67 for tax year 2024–25 during assessment year 2025–26.

What Is Foreign Tax Credit?

The Income Tax Rules have implemented Rule 128 to allow residents of India including NRI returnees to claim tax credits for foreign income taxes they paid on taxable earnings. The tax credit for international payments functions under the name Foreign Tax Credit (FTC).

It is available for:

The foreign income from salary and professional or freelance work and capital gains from overseas investments and dividends and interest from foreign companies and banks and royalties and licensing fees.

Key Point: FTC is available only if you’re a Resident and Ordinarily Resident (ROR). NRIs along with RNORs (Resident but Not Ordinarily Resident) face tax obligations only for their Indian-sourced income so they typically do not need Foreign Tax Credit.

Double Tax Avoidance Agreements (DTAA)

India maintains Double Tax Avoidance Agreements with 90 countries including the USA and UK and UAE and Australia and Canada. These treaties establish the procedures for dividing taxes between nations.Two methods apply under DTAA:

1. Exemption method – Only one country taxes the income.

2. Credit method – Both countries tax the income, but one (usually India) offers a credit for the foreign tax paid.

Section 91 of the Indian tax system provides unilateral relief to taxpayers who have no DTAA agreements so they can use FTC to claim foreign tax paid under Indian tax rules.

Step-by-Step Guide to Claiming FTC via Form 67

The process of claiming FTC requires you to submit Form 67 electronically as either a standalone document or alongside your Income Tax Return (ITR) before or during filing. Here’s how:

Step 1: Collect Documentation

You need to present documentation that proves your foreign income (such as salary slips and invoices together with bank credits).

• Certificate or statement of tax paid abroad
• Foreign tax return (if applicable)
• Foreign TDS certificates or employer statements

Step 2: Log in to e-Filing Portal

You can access the website at https://incometax.gov.in by using your PAN-linked login credentials.

Go to:

e-File → Income Tax Forms → File Income Tax Forms → Select Form 67

Choose Assessment Year: 2025–26

Step 3: Fill Form 67

Provide:

• You need to provide your PAN number together with your full name and residence address.
• Details of income earned from each country
• Tax paid abroad in that country
• The form requires you to enter information about your income type including salary and business or capital gains along with other types.
• Conversion of foreign currency to INR using RBI TT buying rate on the last day of the month before income was received

Step 4: Upload Attachments

Attach:

The application requires foreign tax certificates and proof of payment as well as a Tax Residency Certificate for DTAA benefit.

• Foreign tax certificates

• Proof of payment

The form also requires a Tax Residency Certificate (TRC) when claiming DTAA benefits as well as the foreign tax return document.

• Foreign tax return (if filed)

Step 5: Submit & Verify

To submit Form 67 you need to use either Aadhaar OTP or Net banking or Digital Signature Certificate (DSC) if necessary.

After completing the Form 67 process proceed to file your ITR by using ITR-2 or ITR-3. Ensure:

Your Schedule FSI needs to display foreign income details.

FTC claimed in Schedule TR

All amounts match your Form 67 entries

Example: FTC Calculation

Your earnings from remote work for a US company reached $60,000 during the FY 2024–25 period.

• You paid $9,000 as US federal tax.
• US tax in INR = ₹7,47,000

The conversion of $60,000 to Indian rupees using ₹83/$ equals ₹49,80,000.

• US tax in INR = ₹7,47,000

The total tax liability for this income in India amounts to ₹8,10,000 after applying all deductions.Your claim for Foreign Tax Credit can amount to ₹7,47,000 which leads to a reduction of Indian tax payments.

You should pay the remaining Indian tax of ₹63,000 and properly submit Form 67 together with your ITR to obtain the credit.

Common Mistakes to Avoid

• Missing the Form 67 deadline: File Form 67 before or on the same day as your ITR. If filed after the ITR, FTC may be disallowed.
• Incorrect currency conversion: Use the RBI TT buying rate on the last day of the previous month.
• No proof of foreign tax paid: Attach proper certificates, tax receipts, or employer deductions. Self-declarations are not enough.
• Mismatch between Form 67 and ITR: The foreign income and tax amounts must exactly match in both Form 67 and ITR.

****

Consult with a qualified CA for both peace of mind and maximum benefit. We provide total end-to-end assistance to Indian residents who earn foreign income. Need help with Form 67 or FTC filing? Contact us immediately on +918171582583