Introduction
NRI tax credit and DTAA are crucial tools for NRIs to prevent double taxation. Before you file your Indian Income Tax Return (ITR), it’s important to understand how the Foreign Tax Credit (FTC) works and how Double Taxation Avoidance Agreements (DTAA) offer relief. This guide explains the basics, practical steps, and recent updates so you file accurately and avoid costly errors.
Why NRI Tax Credit and DTAA Matter
Paying tax on the same income in two countries reduces your actual earnings. India offers relief through:
- Foreign Tax Credit (FTC): Allows you to offset taxes paid abroad against your Indian tax liability.
- DTAA: India has signed DTAAs with over 90 countries to avoid double taxation.
How to Claim Foreign Tax Credit
Follow these steps before filing:
✅ Obtain Tax Proof: Get a tax payment certificate or statement (like Form 16 or tax slip) from the foreign country.
✅ Fill Form 67: Mandatory to claim FTC. File Form 67 online before or along with your ITR.
✅ Use Correct Exchange Rate: Convert foreign tax paid to INR using SBI’s TT buying rate on the payment date.
✅ Keep Records: Retain proofs — foreign tax paid, income statements, DTAA copies if needed.
DTAA Methods: Which Applies to You?
DTAAs work in two main ways:
| Method | How It Works |
|---|---|
| Exemption Method | Income taxed abroad is exempt in India. |
| Tax Credit Method | Pay tax abroad, claim credit in India for tax paid there. |
Example: Under India-USA DTAA, most income uses the tax credit method.
Important Rules to Remember
- FTC is only allowed against tax payable under the Indian Income-tax Act — not against interest or penalty.
- Unclaimed FTC for a year cannot be carried forward.
- File within due date under Section 139(1); late filing may restrict your FTC claim.
Expert Tip
👉 Always file Form 67 on time — this is a common mistake that costs NRIs their eligible FTC. Many NRIs assume paying taxes abroad is enough. Indian rules require proper paperwork to avoid double tax.
Recent Updates for NRIs
- CBDT clarified that even for belated and revised returns, Form 67 must be submitted before filing the return to claim FTC (CBDT Circular No. 9/2022).
- E-assessment has made scrutiny stricter — so ensure accurate disclosures.
FAQs on NRI Tax Credit and DTAA
Q1. Can I claim FTC for all foreign taxes paid?
No. Only taxes similar to Indian income tax are eligible. VAT, GST abroad do not qualify.
Q2. Is Form 67 compulsory for all NRIs?
Only if you are claiming foreign tax credit. If you have only Indian income, it’s not needed.
Q3. Can I claim FTC for income exempt under DTAA?
No. Exempt income cannot be double-counted for credit.
Conclusion
NRI tax credit and DTAA relief are your safeguards against double taxation. Use them smartly by filing Form 67 on time, maintaining records, and following the DTAA rules applicable to your resident country.
✅ Need help with NRI ITR filing or claiming FTC? Talk to our experts at Efiletax for hassle-free, compliant filing!
Summary
NRIs should understand foreign tax credit and DTAA benefits before filing ITR. File Form 67, claim eligible credit for taxes paid abroad, and avoid double taxation. India’s DTAAs with 90+ countries help you save. Get expert help with Efiletax!