Earning abroad? Here’s how to claim FTC, keep your taxes in check

If you’re an Indian resident earning income overseas and paying taxes abroad, there’s a lifeline to prevent you from being taxed twice on the same money: the Foreign Tax Credit (FTC). But securing this relief isn’t automatic—it demands precise paperwork and timely compliance.

“Many taxpayers don’t realise that claiming FTC is as much about the rules as it is about documentation,” said Sujit Banger, Tax Consultant. “A single mistake or delay can cost you lakhs in extra tax.”

Whenever an Indian resident earns income from a foreign country, that income typically faces tax deduction at source overseas. However, the same income is also taxable in India because Indian tax laws impose tax on global income for residents. To avoid double taxation, taxpayers can offset the foreign taxes they’ve paid against their Indian tax liability.

“This is where Form 67 comes in,” Banger explained. “It’s the document that makes your FTC claim official with the Indian tax department.”

Residents must file Form 67 before submitting their Income Tax Return (ITR). It’s also mandatory if there’s any change later—for instance, if losses carried back in a foreign country lead to a refund of foreign taxes previously claimed as credit in India.

How Arjun Lost Rs 3 Lakh—and What You Can Learn

Take the case of Arjun, a software engineer working for a UK-based company. His employer deducted tax in the UK, but when he filed his ITR in India, a Form 67 error meant he couldn’t claim his FTC properly. The result? He ended up paying ₹3 lakh extra in taxes.

Arjun’s story underscores a common pitfall: assuming that simply declaring foreign income is enough.

How FTC Works

FTC is designed to ensure you’re not taxed twice on the same income. But there’s a cap:

“India allows you to claim the lower of two amounts—the tax you paid abroad or the tax payable in India on that same income,” said Banger.

For example:

Foreign income: ₹10 lakh

Tax paid abroad: ₹2 lakh

Indian tax on that income: ₹1.5 lakh

FTC allowed: ₹1.5 lakh

“You’ll never get credit for more tax than India would have charged you,” Banger clarified.

Expenses That Qualify—and Those That Don’t

Only certain taxes count for FTC:

✅ Income tax
✅ Surcharge
✅ Health and education cess

You cannot claim FTC for:

❌ Interest or penalties imposed on foreign tax payments

Steer Clear of Common Mistakes

Banger warned that taxpayers often run into trouble because of:

❌ Filing Form 67 late or incompletely
❌ Mismatches between Form 67, Form 26AS, and the ITR
❌ Trying to claim FTC on income exempt in India or on foreign tax amounts still in dispute
❌ Including penalties or interest in the FTC claim

Some practical tips to avoid errors:

✅ Use the RBI’s TT buying rate for currency conversion
✅ Keep detailed records of all foreign income and taxes paid
✅ If you later receive a refund of foreign taxes, revise both your ITR and Form 67 within six months

Paperwork You’ll Need

To successfully claim FTC, gather:

Form 67, filed before your ITR

A Tax Residency Certificate from the foreign country if DTAA applies

Proof of foreign tax paid, like receipts or statements

A copy of your foreign tax return

Income statements detailing your foreign earnings

Finally, don’t forget to report foreign income in Schedule FSI of your ITR. “Disclosing your foreign income properly is key to avoiding scrutiny and ensuring you get the FTC you deserve,” Banger noted.

For taxpayers like Arjun, getting it right could mean the difference between significant tax savings—and paying tax twice on the same income.