Form 67 — foreign tax credit and the mistakes that cost you the credit

The legal framework — Sec 90 / Sec 90A / Sec 91

• Sec 90: India has a DTAA with the source country. FTC = lower of (foreign tax actually paid, Indian tax on the foreign-source income, DTAA rate cap).
• Sec 90A: India has a notified agreement with a specified association of foreign territory (eg. Taiwan). Mechanics same as Sec 90.
• Sec 91: No DTAA with the source country. FTC = lower of (foreign tax paid, Indian tax on that income computed at the average Indian rate of tax).

Form 67 — what it is and when to file

Rule 128 mandates Form 67 for claiming FTC. The form captures:

1. Country of residence of the foreign payer.
2. Source / nature of income (salary, dividend, interest, royalty, fees for technical services, capital gains, etc.).
3. Gross income in foreign currency.
4. Tax paid in foreign currency.
5. Exchange rate (TT buying rate at end of preceding month before payment).
6. INR equivalent of income and tax.
7. FTC claimed.
8. Acknowledgement of payment / tax certificate as attachments.

Filing timeline (post FA 2022 amendment)

Earlier, Form 67 had to be filed strictly before the ITR. From AY 2022-23, Rule 128(9) was amended: Form 67 can now be filed on or before the end of the relevant AY (i.e. 31-March following the AY) for the claim. Late filing of Form 67 after that further window invites a CBDT condonation request.

Form 67 is filed online on the IT portal with the assessee's DSC or EVC.

Currency conversion — the TT buying rate rule

Rule 26: convert foreign currency at the telegraphic transfer (TT) buying rate of the State Bank of India as on the last day of the month preceding the month in which the income is taxable in India or the foreign tax is paid.

Example: US salary credited in January 2026 (taxable in FY 2025-26 in India under accrual basis). US federal tax withheld on the same paycheque. Conversion rate: 31-December-2025 TT buying rate.

Common mistake: using the rate at year-end (31-March) or at filing date. Wrong — use the actual receipt-month preceding rate.

The DTAA rate cap

FTC is capped at the lower of foreign tax actually paid OR the DTAA-prescribed rate on that head of income. Example: India-US DTAA caps source-country tax on dividends at 25% (Article 10), interest at 15% (Article 11), royalty at 15% (Article 12), but allows business profits to be taxed in the source country if there's a permanent establishment.

Income	US WHT	India-US DTAA cap	FTC claimable
US dividend	30%	25%	25% (DTAA cap applies)
US interest	30%	15%	15%
US royalty	30%	15%	15%
US salary	Per IRS	No cap on salary in DTAA	Full federal tax

If the US WHT exceeded the DTAA cap, the resident should claim a refund of the excess from the US IRS — it's NOT available as FTC in India.

Head-of-income matching

FTC is allowed against Indian tax payable on the same head of income from the source country. Example: a US$10,000 dividend taxed in the US doesn't generate FTC usable against Indian capital gain tax. It only offsets Indian tax on dividends.

If foreign tax exceeds the Indian tax on that head, the excess is lost — not refundable, not carry-forward-able (with rare exception under specific DTAAs).

Worked example — US RSU vesting

Mr. P (resident of India) has an RSU vesting at his US parent on 15-Feb-2026 worth $10,000 (gross). US federal withholding: $2,500 (25%). Net cash to India: $7,500.

Step	Computation	Amount
Gross income	$10,000
US tax paid	$2,500
Conversion (rate: 31-Jan-2026 TT buying, assume ₹85/USD)	$10,000 × 85	₹8,50,000
US tax in INR	$2,500 × 85	₹2,12,500
Indian tax (30% slab + 4% cess) on ₹8.5L	30% × 8.5L × 1.04	₹2,65,200
FTC (lower of US tax, Indian tax, DTAA cap)		₹2,12,500
Net Indian tax on RSU	₹2,65,200 − ₹2,12,500	₹52,700

Mr. P pays ₹52,700 of additional Indian tax on the US RSU; total tax (US + India) = ₹2,65,200 — same as if all earned in India. The FTC eliminated double tax.

Common mistakes

1. Missing Form 67. FTC claim without Form 67 = AO disallows. The form is non-negotiable.
2. Wrong currency conversion rate. Use TT buying rate of SBI on last day of preceding month. Not year-end. Not RBI reference rate. Not the rate at filing.
3. Claiming FTC against Indian tax on non-foreign income. Mismatch by head. FTC for US dividend ≠ usable against Indian salary tax.
4. Claiming full WHT when DTAA caps it lower. Excess WHT is a US refund claim, not Indian FTC.
5. Not attaching proof of foreign tax payment. US Form 1042-S, Form W-2, UK SA302, Singapore IRAS NOA — attach the relevant document.
6. Claiming FTC under Sec 91 when Sec 90 / 90A applies. Get the DTAA route right; the rate cap and methodology differ.
7. Salary FTC without 90-day rule analysis. Short-stay employees in some DTAA states may have salary taxable only in country of residence under the 183-day / employment-exercised test. If India-source salary is wrongly taxed in foreign country, refund there — don't claim FTC.

FTC for capital gains

Foreign capital gains (e.g. sale of US stock) are usually not subject to source-country tax under most DTAAs — the residence country has sole taxing right. So FTC isn't typically applicable. Exceptions: real estate gains and shares of "real-estate-rich" companies in some DTAAs (US, UK).

Documentation kit

• Foreign income certificate (Form 1042-S / W-2 / SA302 / IRAS NOA).
• Bank statement showing receipt in India (or in foreign account).
• Foreign tax payment proof (challan / withholding statement).
• DTAA Article reference for the head of income.
• TT buying rate evidence (SBI website snapshot).

Bottom line

Foreign tax credit is one of the most under-claimed provisions in Indian tax filings — partly because Form 67 is mechanical, partly because residents don't realise the DTAA cap may limit them to less than the WHT. File Form 67 on time, use TT buying rate, match head-of-income, and document the foreign tax paid. The credit eliminates double taxation but only if the procedural form-filing discipline is followed. The amount left on the table from wrong currency conversion or missing Form 67 can easily be ₹50K-₹2L per year.

Related

• Form 67 / FTC calculator
• DTAA rate finder
• NRI residency rules
• Schedule FA disclosure trap