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Customer Care No.

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Comments on the Draft


Rule for giving Foreign Tax
Credit
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1. Introduction:
Finance Act 2015, inserted, w.e.f. 01.06.2015, clause
(ha) in sub-section 2 of Section 295. It enables the
Board, subject to the control of Central Government,
by a notification in the Gazette of India, to make
rules specifying the procedure for grant of relief,
deduction of any Income tax paid in any country or
specified territory outside India u/s 90, or Section
90A or Section 91, against the income-tax payable
under the Act. Accordingly, the Board has, in
accordance with the recommendation made by the
Committee constituted by it, vide LETTER
[F.NO.142/24/2015-TPL], DATED 18-4-2016,
announced Draft Rules for granting relief or
deduction under section 90/90A/91 of the Income-tax
Act, 1961.

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2. Salient features of Draft Rule:
The salient features of the Rules are:
i. For the purpose of giving credit, Foreign tax means(a) Tax covered in the Double Taxation Avoidance Agreement entered into by India with a country in terms of
Section 90/90A.
(b) Tax, being in the nature of Income tax referred to in clause (iv) of the Explanation to section 91, payable
under the laws in force in a country, with which India does not have Double Taxation Avoidance Agreement.
ii. The Foreign Tax Credit shall be allowed to an Indian resident by way deduction or otherwise, in the year in
which the income corresponding to such tax has been offered to tax or assessed to tax in India, in the
manner and to the extent as specified in this rule.
iii. The Foreign Tax Credit shall be allowed only against Income tax, Surcharge and cess payable under
Income tax Act and not against any interest fee or penalty.
iv. No credit of Foreign Tax shall be allowed if, it is disputed in any manner (in the Source Country).

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v. The foreign tax in respect of each source of income in a particular Foreign Country or specified territory
shall be calculated separately and aggregated. The credit of such aggregate shall be allowed in the
following manner:(a) The credit shall be lower of the tax payable on such income under Income tax Act and in the Foreign
Country/specified territory.
(b) The amount of foreign tax for which credit shall be given will be worked out in Indian Currency on the
basis of the telegraphic transfer buying rate on the date on which such tax has been paid or deducted.
vi. The credit of foreign tax shall be allowed against tax payable u/s 115JB or 115JC in the same manner as
it is allowed against tax payable under the normal provisions of the Act.
vii. Where Foreign Tax Credit has been allowed against tax payable u/s 115JB and 115JC and such Foreign
Tax Credit exceeds the credit available against tax payable under normal provisions of the Act then, while
computing the amount of credit u/s 115JAA or 115JD in respect of the taxes paid u/s 115JB or 115JC, such
excess shall be ignored.
viii. For claiming Foreign Tax Credit following documents are required to be furnished by assessee:
(a) Certificate from the Tax Authority of Foreign Country specifying the nature of income and the amount of
tax deducted therefrom or paid by the assessee.
(b) In case of tax deducted at source a certificate from the person responsible for deduction of such tax.
(c) In case of online payment of foreign tax, acknowledgment or bank counter foil or a slip or challan.

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3. Examples explaining Rules:
(i) If aggregate of Foreign tax paid in a country is Rs. 1000/-(calculated at the telegraphic transfer buying
rate on the date on which such tax has been paid or deducted)(a) And if, Income tax, surcharge and cess payable in India is Rs. 900/- then credit of Foreign tax to the
extent of Rs. 900/- only will be allowed and the rest of Rs. 100/- shall be ignored.
(b) And if, Income tax, surcharge and cess payable in India is Rs. 900/- + interest payable in India is Rs.
200/- then Foreign Tax Credit will be allowed to the extent of Rs. 900/- only. No credit against interest will
be allowed. He will have to pay interest of Rs. 200/- in India.
(c) And if, Income tax, surcharge and cess payable in India is Rs. 1100/- and interest charge is Rs. 200/then credit to the extent of Rs. 1000/- against tax payable shall be allowed and the assessee will have to
pay Rs. 100/- as tax in India and interest of Rs. 200/-.
(d) No credit of Foreign Tax shall be allowed against fee or penalty.
(e) If out of Rs. 1000/- of foreign tax an amount of Rs. 300/- is a dispute in the Foreign Country then, a
credit of only Rs. 700/- shall be allowed. Accordingly in example (a) and (b) assessee will have to pay Rs.
200/-, + interest (example (b)); in example (c) assessee will have to Pay Rs. 400/- + interest.

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