FTC Not denied merely on procedural lapses if conditions met

ITAT Chandigarh Order Assessee Regarding FTC not be denied merely on procedural lapses if substantive conditions are met.

Income Tax Appellate Tribunal Chandigarh in the case of Ashish Sood vs. DCIT (order dated 23.04.2024) ruled in favor of the assessee regarding the foreign tax credit claim. foreign tax credit should not be denied merely on procedural lapses if substantive conditions are met. Key Observations of Income Tax Appellate Tribunal Chandigarh:

Time Limit for Filing Form 67:

The tribunal noted that the time limit for filing Form 67, as per Rule 128(9) prior to 1st April 2022, did not strictly mandate that the form be filed before the due date of the ITR. Therefore, an assessee filing Form 67 after filing the return but before the intimation u/s 143(1) should still be eligible for foreign tax credit.

Incorrect Denial of FTC by AO and Commissioner of Income Tax (Appeals):

The AO & Commissioner of Income Tax (Appeals) had denied the Foreign Tax Credit claim solely on the grounds that Form 67 was not filed before the ITR due date. However, the ITAT referred to precedents where it was held that FTC cannot be denied merely due to a delay in filing Form 67.

Relief Granted by Income Tax Appellate Tribunal :

The impugned order of Commissioner of Income Tax (Appeals) was set aside and The matter was remanded back to CIT(A) with directions to allow FTC after due verification of the foreign income earned in the USA and tax credits claimed.

Implication of the ITAT Chandigarh Order :

This FTC ruling reinforces that FTC should not be denied merely on procedural lapses if substantive conditions are met. Taxpayers who miss the due date for Form 67 but file it before 143(1) intimation may still be eligible for foreign tax credit. Assessees facing similar disallowances can rely on this ruling for relief.

Other Important Aspacts of Filling Out Form 67:

Form 67 Applicability:

Income Tax Form 67 filling is required when a taxpayer wants to claim Foreign Tax Credit u/s 90, 90A, or 91 of the Income Tax Act. It applies to both individuals and businesses earning income from foreign sources.

Due date for filing Form 67 For FY 2024-25

For FY 2024-25 (AY 2025-26), the due date for filing Form 67 depends on the type of return being filed:

• For Original Return (u/s 139(1)), – Form 67 must be filed before the due date of ITR, which is July 31, 2025 (for individuals not subject to audit).
• In case of Belated Return (u/s 139(4)), -Form 67 must be filed before December 31, 2025.
• For Updated Return (u/s 139(8A)), Form 67 must be filed before the due date of the updated return.

• Filing Form 67 for Revised ITR: If you are revising your return (ITR-U or otherwise), ensure that Form 67 is rectified and submitted before filing the revised return.

• Impact of Not Filing Form 67 on Time: If Form 67 is not submitted before the due date of ITR filing, the claim for Foreign Tax Credit may be denied. However, the taxpayer can still request condonation of delay to allow FTC claims. If Form 67 is not filed before the end of the AY (i.e., March 31, 2026), you will not be eligible for the FTC  u/s 90 of the Income tax Act

• Condonation for Late Filing of Form 67: CBDT Circular No. 9/2022 (dated 16 June 2022) allows for condonation of delay in filing Form 67 up to the end of the AY if the taxpayer can provide a valid reason. The condonation request can be filed online via the “Condonation Request” section on the e-filing income tax portal.

Foreign Tax Credit (FTC) claim under Rule 128

The Foreign Tax Credit rules under Rule 128, ensuring clarity on claiming relief for taxes paid abroad.

• Foreign Tax Credit Claim Timing: Available in the year when the corresponding foreign income is taxed in India.
• Adjustment Scope: Can be offset against tax, surcharge, and cess, but not against penalties or interest.
• Disputed Taxes Excluded: If foreign tax is under dispute, foreign Tax Credit is not allowed until the dispute is settled.
• Minimum Alternate Tax Eligibility: Foreign Tax Credit can be claimed even if tax is paid u/s 115JB.
• Per-Country & Per-Income Basis: Foreign Tax Credit is calculated separately for each income source and country before aggregation.
• Maximum Foreign Tax Credit Limit: – Lower of (i) tax paid in the foreign country or (ii) Indian tax liability on that income.
• Currency Conversion Rule: Uses the Telegraphic Transfer Buying Rate of the last day of the month before the foreign tax was paid/deducted.

For FTC claim below, documents are required to be filed on or before the due date of filing the ITR return:

To successfully claim Foreign Tax Credit (FTC) under Rule 128, the following documents must be furnished on or before the due date of filing the return:

1. Form 67 Submission : A statement detailing: Foreign income offered to tax in India and Foreign tax deducted or paid on such income
2. Certificate/Statement Specifying Foreign Income & Tax Paid : Must be obtained from any of the following:

• • Foreign tax authority (Official tax assessment or payment proof)
  • Entity deducting the tax (Certificate from employer, bank, or payer)
  • Self-certified statement (Signed by the taxpayer)

3. Proof of Payment of Foreign Taxes: Any of the following documents can be used as proof:

• • Tax payment challan or receipt from the foreign country
  • Bank statements showing tax deduction or remittance
  • Payslip/withholding tax certificate from employer

In summary, Documents Required for Filing Form 67 : Statement or proof of payment of foreign tax (e.g., tax receipts). A copy of the tax return filed in the foreign country. and Any supporting documents showing the income earned and tax paid abroad.

Guide Steps for filing Form 67 on the e-filing portal

Step 1: Log in to the e-Filing Portal.  : Visit the official Income Tax e-filing portal:  https://www.incometax.gov.in  then we go for Log in using your PAN/Aadhaar, password, and captcha.

Step 2: Navigate to Form 67 : Click on “e-File” > “Income Tax Forms” then Select “File Income Tax Forms.” Then, in the search bar, type “Form 67” and select it.

Step 3: Fill in the Required Details: AY  Choose the relevant AY for which you are claiming the Foreign Tax Credit. Taxpayer information like PAN & other basic details will be auto-populated.

• Foreign Income Details:
  • Country where the income was earned.
  • Nature and source of income.
  • Amount of income earned in the foreign country.
  • Foreign tax paid (in foreign currency).
  • Foreign tax paid (converted into INR).
• FTC Calculation: Mention the eligible amount of Foreign Tax Credit as per the DTAA or Section 91 (if applicable). then we required to Upload Supporting Documents like Tax payment receipt/proof from the foreign country. and Copy of the foreign income tax return filed.

Step 4: Verification and Submission: After filling out the details, click “Proceed to e-Verify”. we have to Choose one of the verification methods: DSC (for corporate taxpayers or required cases). or Electronic Verification Code (using Aadhaar OTP or net banking).

Step 5: Confirmation and Filing ITR : After successful submission, a confirmation message and acknowledgment number will be generated. Ensure Form 67 is submitted before filing your ITR, or else your FTC claim may be denied.

FTC claim process supports services.

Form 67 plays a crucial role in preventing double taxation by allowing taxpayers to claim Foreign Tax Credit. Since the correct filing of Form 67 is essential for availing Foreign Tax credit, missing deadlines or incorrect submissions can lead to loss of tax credits.

The FTC claim process is complex, & also looking forward to hiring a CA who can help ensure:

• Timely & error-free filing of Form 67
• Proper documentation & compliance with Rule 128
• Maximizing your tax savings while avoiding double taxation

We can assist in Foreign Tax Credit calculation, Form 67 filing, or a tax consultation for your international income.