Foreign Tax Credit (FTC)

Foreign Tax Credit (FTC) is a relief provided to taxpayers who have paid tax on the same income in a foreign country and in India.

It helps avoid double taxation by allowing you to claim credit for taxes already paid outside India while calculating your Indian tax liability.

What this really means

If you earn income abroad — like salary, interest, or business income — that income may be taxed in the foreign country.

When you report that same income in India, you don’t have to pay tax twice on it. You can claim a credit for the tax already paid abroad.

That credit reduces your tax liability in India.

How Foreign Tax Credit Works

• You earn income in a foreign country
• Tax is paid in that country
• The same income is reported in your Indian tax return
• You claim credit for foreign taxes paid
• Your Indian tax liability is reduced accordingly

Conditions for Claiming FTC

To claim Foreign Tax Credit:

• The income must be taxable in India
• Tax must have been paid in the foreign country
• Proper documentation of foreign tax paid is required
• Credit is allowed only to the extent of Indian tax on that income

Documents Required

• Proof of tax paid in the foreign country
• Foreign tax return or tax statement
• Income details and supporting documents
• Form 67 (required for claiming FTC in India)

Why Foreign Tax Credit is Important

FTC ensures that you are not taxed twice on the same income.

It helps:

• Reduce overall tax burden
• Ensure fair taxation
• Improve compliance for individuals earning global income
• Align with international tax agreements

FTC and DTAA

Foreign Tax Credit is often linked with Double Taxation Avoidance Agreements (DTAA).

• DTAA defines how income is taxed between two countries
• FTC provides the mechanism to claim relief

Both work together to prevent double taxation.

Who Can Claim FTC?

• Residents of India earning income abroad
• NRIs with taxable income in India (in certain cases)
• Individuals or businesses with foreign income