Foreign Income Tax Credit: 5 Powerful Facts NRIs Must Know Before Filing in India

If you’re an NRI earning income from both India and abroad, the fear of being taxed twice is real—and valid. But there’s good news. The Foreign Income Tax Credit (FTC) is a legal mechanism that can save you from this financial burden. It ensures you don’t pay taxes twice on the same income by letting you offset foreign taxes paid against your Indian tax liability. However, this isn’t automatic—you need to understand the rules and act before filing your Indian tax return.

In this guide, we’ll break down 5 powerful facts about FTC every NRI must know before filing taxes in India.

1. What Is Foreign Income Tax Credit and Why NRIs Should Care

The Foreign Income Tax Credit is designed to prevent double taxation for Indian taxpayers earning foreign income. If your foreign earnings are taxed abroad and are also taxable in India, FTC allows you to claim credit for the tax paid overseas. This credit directly reduces your Indian tax bill.

Why is this important? Because double taxation can eat into your income and disrupt your financial planning. With FTC, your global earnings are protected and taxed fairly under Indian law.

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2. Eligibility: Who Can Claim Foreign Tax Credit in India?

FTC isn’t exclusive to high-net-worth NRIs. You can claim it if:

• You’re an NRI or Resident Indian who paid tax in another country on income also taxable in India.
• The foreign tax must be similar in nature to Indian income tax.
• You must have actually paid the foreign tax (not just liable to pay).

Whether you’re earning a salary in the US, rental income in Dubai, or dividends from UK stocks, if it’s taxed both there and here—you’re likely eligible.

3. Mandatory Form 67: Don’t Miss This Step

Many NRIs miss out on FTC simply because they don’t file Form 67—a crucial prerequisite. You must file this electronically via the Income Tax e-Filing portal before submitting your income tax return.

Key documents to attach with Form 67:

• Tax Residency Certificate from the foreign country
• Proof of tax paid abroad (challans, statements, etc.)
• Foreign income documents and tax returns (if available)

Without this form, your claim may be rejected even if you meet all other conditions.

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4. How Is FTC Calculated? Know the Limits

The amount of credit you’re allowed is the lower of:

• Tax payable in India on the foreign income, or
• Actual tax paid in the foreign country (converted to INR)

This means if you paid more tax abroad than you owe in India, you can only claim the Indian amount—not the full foreign tax. You also cannot carry forward any unclaimed credit.

Also, FTC doesn’t apply to penalties, fees, or interest paid abroad—it’s strictly for income taxes.

5. Filing Deadlines & Disputes: Timing Is Everything

• File Form 67: Before or on the date you file your Indian return under Section 139(1), 139(4), or 139(8A).
• If your foreign tax is under dispute, claim credit once it’s resolved—submit proof within 6 months of settlement.

Failing to follow these timelines could lead to rejection of your FTC claim. Keeping clean records and timely submissions is the key to hassle-free filing.

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Turn Compliance into Smart Financial Planning

Claiming Foreign Income Tax Credit is more than ticking a box—it’s a strategic move for any NRI managing global income. It reduces your tax outgo, ensures fairness, and gives you peace of mind during tax season. Just remember:

• Check your eligibility
• File Form 67 on time
• Keep proper documentation

If you’re unsure or overwhelmed, don’t hesitate to seek help from NRI-focused tax advisors or trusted platforms who specialize in cross-border tax compliance.

FAQs

Q1. Can I claim FTC if I’ve also taken the standard deduction?
Yes. FTC is a separate credit and can be claimed in addition to standard deductions.

Q2. What if I paid foreign taxes in a country with no DTAA with India?
You can still claim FTC under Section 91, even if there’s no tax treaty.

Q3. Is there a benefit in claiming FTC over foreign tax deduction?
Absolutely. A credit reduces your tax liability rupee-for-rupee, while a deduction only reduces your taxable income.

Q4. Can I file Form 67 after filing my tax return?
No. Form 67 must be filed before or along with your Indian tax return—late submissions may disqualify your FTC.