CBDT Pro­poses Rules to Of­fer Re­lief on Tax Paid Out­side In­dia

The Economic Times - - Economy - Our Bureau

New Delhi: A frame­work pro­posed by the Cen­tral Board of Di­rect Taxes (CBDT) for grant­ing re­lief in lieu of the in­come tax paid out­side In­dia will pro­vide clar­ity to In­dian com­pa­nies or in­di­vid­u­als hav­ing for­eign in­come. As per the draft for­eign tax credit rules put out by CBDT, credit can be claimed on in­come tax, sur­charge and cess. For­eign tax credit rules ap­ply in a sit­u­a­tion where tax is paid in a for­eign country and the same in­come is sub­ject to tax in In­dia. In such a sit­u­a­tion, the tax­payer may be able to take credit for tax or claim a de­duc­tion for those taxes.

The ab­sence of For­eign Tax Credit (FTC) rules was mak­ing it dif­fi­cult for tax­pay­ers and tax au­thor­i­ties to agree on credit claims and led to un­cer­tainty as well as lit­i­ga­tion. The draft pro­poses to al­low credit to a res­i­dent in the year, in which cor­re­spond­ing in­come has been of­fered to tax or as­sessed to tax in In­dia. It de­nies credit for any for­eign tax, which is dis­puted in any man­ner by the tax­payer. The tax credit will be avail­able to en­ti­ties pay­ing taxes in any country, in­clud­ing those with which In­dia has Dou­ble Tax­a­tion Avoid­ance Agree­ment (DTAA).

“The credit for for­eign tax shall be avail­able against the amount of tax, sur­charge and cess payable un­der the Act but not in re­spect of any sum payable by way of in­ter­est, fee or penalty,” the draft rules say. CBDT has in­vited com­ments from stake­hold­ers on the draft rules by May 2. The draft rules re­quire tax­pay­ers to fur­nish cer­tain doc­u­ments, in the ab­sence of which credit will not be al­lowed, in­clud­ing cer­tifi­cate from tax au­thor­ity of country out­side In­dia, spec­i­fy­ing the na­ture of in­come and amount of tax de­ducted or paid by tax­pay­ers, among oth­ers.

“This draft is a well thought-out move to clar­ify the na­ture and con­di­tions for avail­abil­ity of FTC to In­dian tax­pay­ers. Two points are note­wor­thy, namely, cess and sur­charges in ad­di­tion to tax will also be cred­itable and FTC will be avail­able against MAT ( min­i­mum al­ter­nate tax) li­a­bil­ity too,” said Sudhir Ka­pa­dia, na­tional tax leader at pro­fes­sional ser­vices firm EY. Th­ese are draft rules and open to some changes.

Rakesh Nan­gia, man­ag­ing part­ner at Nan­gia & Co sug­gested: “The rules do not make any pro­vi­sions for carry for­ward of ex­cess for­eign tax paid, nei­ther do they ad­dress the is­sue of branch prof­its tax paid by branches of In­dian com­pa­nies over­seas. The rules also do not ad­dress the is­sue of un­der­ly­ing tax cred­its in re­spect of div­i­dend in­come.” Jiger Saiya, part­ner-di­rect tax at BDO In­dia said: “There could be prac­ti­cal chal­lenges where other coun­tries don’t have pro­ce­dural mech­a­nisms to is­sue with­hold­ing tax cer­tifi­cates,” he said.

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