India follows a residence-based taxation model. If you are a tax resident of India, your entire global income — regardless of where it was earned or where it sits — is taxable in India. At the same time, most countries also levy a source-based tax: they tax income generated within their territory, even if the earner is not their resident.

The collision of these two principles creates double taxation:

• Freelance project for a US company — 25% US withholding, then Indian tax on the same income
• Rental income from a UK property — UK income tax at source, then India taxes it again
• Dividends from Singapore-listed shares — Singapore withholding, Indian tax on the same dividend
• Interest from a German bank account — German withholding tax, Indian tax as worldwide income

India addresses this through two mechanisms — DTAAs (tax treaties with specific countries) and the unilateral FTC provisions under Sections 90/91 read with Rule 128 of the Income Tax Rules.

The FTC you can claim is the lower of two amounts:

• The actual foreign tax paid on that specific income
• The Indian tax that would apply to that same income at Indian rates

FTC = Min (Foreign Tax Paid, Indian Tax on that Foreign Income)

This formula prevents a situation where you use foreign tax payments to eliminate Indian tax on domestic income. The credit is ring-fenced to the specific foreign income it relates to.

• 1Obtain Foreign Tax Certificate
  Get an official document from the foreign payer or tax authority confirming the tax deducted. For US income — Form 1042-S or W-2. For UK — P60 or a HMRC tax computation. For other countries — whatever withholding certificate the payer issues. This is your primary evidence.
• 2Convert to Indian Rupees — RBI Rate
  Under Rule 115, use the RBI telegraphic transfer buying rate (TT buying rate) as on the date the income was received. Do not use an approximate or average rate — the date-specific RBI rate is what the department will verify.
• 3File Form 67 (Form 44 from TY 2026-27) — Before End of Assessment Year
  Go to incometax.gov.in → Login → e-File → Income Tax Forms → Form 67. Enter country, income type, foreign income in INR, foreign tax paid in INR, Indian tax on that income, and the FTC being claimed. Submit and note the ARN generated. Important: Under Rule 128(9), Form 67 must be filed on or before the end of the relevant Assessment Year — for FY 2025-26 income (AY 2026-27), the deadline is March 31, 2027. File it before your ITR for a clean claim. Note: Under the Income Tax Act 2025, Form 67 is renumbered as Form 44 for Tax Year 2026-27 onwards.
• 4Reference ARN in Your ITR
  In ITR-2 or ITR-3, fill Schedule FSI (Foreign Source Income) with details of each foreign income stream. Fill Schedule TR (Tax Relief) with the FTC amounts. Reference the Form 67 ARN. The FTC is then applied against your total Indian tax liability.

Example 1: US Stock Dividends

Mrs. Sharma holds US stocks through an Indian brokerage. In FY 2025-26, she receives $500 in dividends. The US automatically withholds 25% ($125), and $375 is credited to her account.

• Dividend income in INR (at ₹84/USD): ₹42,000
• Indian tax at 30%: ₹12,600
• US tax withheld: $125 × ₹84 = ₹10,500
• FTC = Min(₹10,500, ₹12,600) = ₹10,500
• Net India payable: ₹2,100

She files Form 67 before July 31, claims FTC in Schedule TR of ITR-2, and pays only ₹2,100 in India instead of the full ₹12,600.

Example 2: UK Rental Income — Where Excess Foreign Tax Hurts

Mr. Verma owns a flat in London. Annual rent: £12,000. UK deducts 20% income tax = £2,400 (approximately ₹2,59,200 at ₹108/£).

In India, this rental income, when converted, falls in the 30% slab. His Indian tax on this specific income works out to ₹1,05,000.

• FTC = Min(₹2,59,200, ₹1,05,000) = ₹1,05,000
• Net India payable: Zero
• Excess UK tax (₹1,54,200): Cannot be claimed anywhere — lost permanently

The good news: India’s tax obligation is fully eliminated. The bad news: the excess UK tax has no remedy under Indian law. Mr. Verma should explore whether the India-UK DTAA allows any reduction in the UK withholding rate to minimise this loss.

Mistake 1 — Skipping Form 67 and only filling Schedule TR in ITR:
Schedule TR and Form 67 are both mandatory — one does not substitute for the other. Without a filed Form 67, the FTC claim has no supporting submission and can be rejected in processing.

Mistake 2 — Confusing the Form 67 deadline with the ITR due date:
Form 67 must be filed before the end of the relevant Assessment Year — for FY 2025-26, that means by March 31, 2027. The ITR due date (July 31) is the best time to file Form 67 to keep the claim clean, but the outer deadline is AY end. Recent ITAT rulings have treated late Form 67 as a procedural lapse rather than a permanent denial — but do not rely on tribunal mercy. File before your ITR.

Mistake 3 — Using an approximate exchange rate instead of the RBI TT buying rate:
Rule 115 specifies the RBI telegraphic transfer buying rate on the date of income receipt. Using Google’s exchange rate or a monthly average will create discrepancies that may be flagged in assessment.

Mistake 4 — Not declaring foreign income in the ITR at all:
Some taxpayers assume that since tax was deducted abroad, there is nothing to report in India. This is incorrect — Indian residents must declare all foreign income in their ITR. AIS is increasingly capturing international remittances. Non-disclosure carries the risk of a reassessment notice.
Income Tax Reassessment — Time Limits and Rules 2026

Mistake 5 — Expecting to carry forward excess FTC:
If the foreign tax paid exceeds the Indian tax on that income, the surplus is simply lost — no refund, no carry forward. If you consistently face excess foreign withholding, consider restructuring the arrangement or invoking DTAA provisions to reduce the source country’s withholding rate.