The Central Board of Direct Taxes (CBDT) has amended Rule 128 of the Income-tax Rules, 1962, providing major relief to taxpayers in the matter of claiming Foreign Tax Credit (FTC).

This means that taxpayers can claim credit for taxes paid outside India before the end of the assessment year if the I-T return is filed within the stipulated deadline.

So far, Foreign Tax Credit (FTC) could have been claimed only if Form- 67 along with necessary documents were filed within the due date for filing the original return, thereby restricting the ability to claim credit for taxes paid outside India.

“The Statement in Form No. 67 can now be furnished on or before the end of the relevant Assessment Year. Notification No. 100/2022 issued,” according to a Finance Ministry statement.

The pre-amended Rule required the FTC claim to be filed by the due date of furnishing the Income Tax Return. The amendment operates retrospectively so that this benefit is available to all FTC claims filed during the current financial year.

Computation of FTC in case of assessee’s with cross border payments has been a major hassle for tax professionals. Absence of well-defined set of rules, coupled with few judicial precedents had resulted in diversified practices.

The CBDT inserted Rule 128 to the Income-tax Rules, 1962 providing the rules for grant of Foreign Tax Credit. The said rules were inserted with an aim to help provide much needed clarity in an area which was until now marked by diverse interpretations. It was also aimed at reducing the hassle in claiming credit on tax paid in foreign countries and help achieve the Government’s vision for non-adversarial tax regime.