Winning the Case for Foreign Tax Credit: A Success Story of Our NRI Client

For Non-Resident Indians (NRIs), managing the complexities of international tax laws can often feel like walking on a tightrope. One of the most significant challenges faced by NRIs is claiming Foreign Tax Credit (FTC)—a mechanism designed to prevent double taxation on the same income. However, procedural complexities and strict timelines can make this process daunting.

At Laabdhi, we specialize in simplifying these complexities, ensuring that our clients get the benefits they are entitled to under the law. Let’s explore how FTC works, the common challenges NRIs face, and how our expertise can help resolve them.

What is Foreign Tax Credit (FTC)?

FTC allows taxpayers to claim credit for taxes paid in a foreign country against their Indian tax liability. For NRIs, this credit is especially critical as they often have income sources in multiple jurisdictions.

In India, FTC is governed by:

• Section 90/91 of the Income Tax Act: For countries with and without a Double Taxation Avoidance Agreement (DTAA) with India.
• Rule 128 of the Income Tax Rules: Specifies documentation and timelines, including the submission of Form 67.

Challenges in Claiming FTC

Despite the provisions, claiming FTC can be challenging due to:

1. Strict Timelines:
   Form 67 must be filed before the due date of the income tax return under Section 139(1). Missing this deadline, even due to genuine reasons like health issues or unforeseen circumstances, often leads to rejection.
2. Complex Procedures:
   Filing Form 67 requires accurate documentation, including proof of taxes paid abroad, which can be cumbersome for NRIs working across different time zones.
3. Misinterpretation of Rules:
   Tax authorities sometimes treat procedural delays as grounds to deny FTC claims, despite judicial precedents ruling otherwise.

How Laabdhi Can Help

At Laabdhi, we combine our expertise in tax laws with a deep understanding of NRI-specific challenges to provide effective solutions:

1. Comprehensive Assessment:
   We thoroughly evaluate each case, ensuring all necessary documentation is in place. This includes Form 67, tax certificates, and proof of foreign tax payments.
2. Expert Representation:
   If your FTC claim is denied, we represent you at appellate forums, leveraging legal precedents to ensure your rights are upheld.
3. Simplified Compliance:
   Our team ensures timely and accurate filing, helping you avoid procedural lapses and ensuring seamless claim processing.

Winning an FTC Claim for an NRI Client

Consider the case of Mr. Chatterjee, an NRI earning an annual income of ₹1 crore from his employment in the United Kingdom, had paid ₹37.79 lakh in taxes to the UK government. Under the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the UK, Mr. Chatterjee was entitled to claim a Foreign Tax Credit (FTC) against his Indian tax liability. However, his return for Assessment Year (AY) 2021–2022 was filed after the due date specified under Section 139(1) of the Income Tax Act. This delay, caused by unavoidable COVID-related challenges and health issues, resulted in the denial of FTC by the Centralized Processing Centre (CPC), Bengaluru.

Despite having submitted Form 67 along with his belated return under Section 139(4), his FTC claim was disallowed on the grounds of procedural non-compliance.

The tax department rejected his claim, citing Rule 128(9). However, by representing his case at the Income Tax Appellate Tribunal (ITAT) in Kolkata, we demonstrated that procedural delays should not override the substantive rights granted under the DTAA. The tribunal ruled in his favor, allowing him to reclaim his FTC.

Conclusion 

Mr Chatterjee’s story is a reminder that even when tax laws feel overwhelming, there’s always a path forward with the right guidance. At Laabdhi, we specialize in NRI taxation, ensuring they get the benefits they deserve.

If you’re an NRI facing tax challenges—whether it’s about FTC claims, compliance, or planning—we’re here to help. Let us handle the tricky parts so you can focus on what matters most to you.

Reach out to Laabdhi today for expert tax consultation. Your peace of mind is just a call away.