On 27 June, the Central Board of Direct Taxes notified rules prescribing the manner in which credit for foreign taxes paid by a tax resident of India may be obtained. The rules provide for the following:
Eligibility criteria: Resident taxpayers can claim credit for foreign taxes paid in treaty jurisdictions and any other country where income tax includes excess profits tax or business profits tax charged by the central or local authorities of that country.
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Timing mismatches: Where foreign income is taxable in India across two years, credit shall be proportionately distributed across those years based on when the income is offered to tax in India.
Taxes covered: Credit shall be available against the amount of income tax, surcharge and cess payable under the act, but not against interest, fees or penalties in respect of the tax payable.
Disputed tax: No credit shall be available for any amount of foreign tax which is disputed in any manner by the taxpayer.
Computation: Tax credit shall be the aggregate of amounts of credit computed separately for each source of income arising from a particular country or territory. Further, the amount of credit available in India shall be the lower of the taxes paid in India or foreign taxes paid.
Credit for minimum alternate tax (MAT): Foreign tax credit may also be available for Indian taxes paid which are in the nature of MAT.
Documentation: Foreign tax credit shall be available for taxpayers who furnish a statement of income offered for tax for the previous year in the foreign jurisdiction, and of foreign taxes deducted or paid in the foreign jurisdiction in form 67.
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