Credit is allowed on foreign tax paid to the extent of tax payable in India on such income. FTC would be available against tax, surcharge and cess payable under the Income-tax Act, 1961, including minimum alternate tax (MAT), but not in respect of interest, a fee or penalty. To claim FTC, taxpayers have to submit proof of the tax paid or deducted at source in the foreign country. The claim would be accompanied by a self-certified form in the prescribed format before the due date for filing of return of income. For the calculation of FTC, the conversion would need to be done using the exchange rate as on the last day of the month immediately preceding the month in which the foreign tax was paid or deducted.
Although CBDT has taken cognisance of industry recommendations on various points, it appears that a few have missed their attention.
FTC is available in the year income corresponding to such foreign tax is assessed in India. Accordingly, where income corresponding to foreign tax is offered to tax in more than one year, FTC would be allowed in those respective years. This would certainly help in ironing out the differences arising due to different financial years followed in different jurisdictions, but would not completely address the issue that was raised. It was expected that the final rules would allow the carry forward and set-off of tax credit. This would have helped companies to utilise FTC entirely regardless of differences in computational provisions (like different depreciation rates, accrual versus cash system); however, this point seems to have been overlooked.
In the case of disputed demands, FTC would only be allowed once the dispute in a foreign jurisdiction is settled subject to furnishing of evidence of the final settlement of such dispute. Since a detailed procedure has not been prescribed in this regard, the claim of such FTC may pose practical difficulties, especially where a dispute involving a foreign jurisdiction drags on for a number of years (due to which the time limit for revising tax returns in India would expire and the assessment proceedings would be concluded). Detailed guidelines on this aspect may be issued to ensure that such practical difficulties are addressed.