I-T department proposes foreign tax credit rules to help companies

BUT NO CREDIT SHALL BE AVAILABLE IN RESPECT OF ANY FOREIGN TAX WHICH IS DISPUTED IN ANY MANNER

NEW DELHI: To provide relief to companies having overseas incomes, the tax department on Monday proposed simplified foreign tax credit (FTC) rules, allowing them to claim credit for taxes paid overseas.

The Central Board of Direct Taxes (CBDT) in its draft FTC rules said 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 Income-Tax Act, but not in respect of any sum payable by way of interest, fee or penalty,” said the draft rules on which the CBDT has invited comments from stakeholders by May 2.

The tax credit, the CBDT said, will be the “aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory”.

The tax credit shall also be available against minimum alternate tax (MAT) liability. “This will nip in the bud an issue that could have led to litigation,” said Rakesh Nangia, managing partner, Nangia & Company.

The foreign tax credit, the draft rule said, shall be determined by conversion of the currency of payment of foreign tax. The proposed rules will reduce the hassle in claiming credit from the IncomeTax department on tax paid in other countries, Nangia said.

The entities claiming tax credit will have to submit proof of tax paid. These would include certificate from the tax authority or a TDS certificate, online acknowledgement of foreign tax payment and a declaration that the amount claimed is not under any dispute.