Double Taxation Relief for NRIs: Bilateral vs Unilateral Relief and Claiming Foreign Tax Credit With Form 67

Every non-resident with a foot in two tax systems eventually meets the same problem: the same rupee of income is claimed by two treasuries at once. India taxes on the basis of source and residence; most host countries tax their residents on worldwide income. Without a relief mechanism, a dividend, an interest coupon or a capital gain can be taxed twice over. The Income Tax Department's guidance on Double Taxation Relief sets out two routes to fix this — bilateral relief under Sections 90 and 90A of the Income-tax Act, 1961 where a treaty exists, and unilateral relief under Section 91 where none does. This guide explains both, and shows exactly how the Foreign Tax Credit (FTC) is computed and claimed through Form 67.

The two routes are not interchangeable: bilateral relief follows the negotiated rate in a specific Double Taxation Avoidance Agreement, while unilateral relief is a domestic fallback India grants on its own. Getting the classification wrong is the single most common reason an FTC claim is disallowed at assessment.

FEMA / DTAA Position

India has signed comprehensive Double Taxation Avoidance Agreements with more than 90 countries, and each one allocates taxing rights source-by-source. Under Section 90 of the Income-tax Act, 1961, where such a treaty exists, relief is granted bilaterally — the DTAA itself caps the rate the source state may charge and prescribes how the residence state must relieve the resulting double tax. Section 90A extends the identical machinery to agreements adopted by specified associations rather than sovereign governments.

Where no treaty covers the country in question, Section 91 provides unilateral relief instead. India simply allows a credit for the foreign tax paid, computed at the lower of the Indian rate or the foreign rate on the doubly-taxed income, without needing a counterparty. The two mechanisms differ sharply in the rate they respect, as the table below sets out.

For treaty relief the DTAA also fixes ceilings on what the source state can withhold. These capped rates are what a non-resident quotes to a payer to reduce over-deduction of TDS. The verified maximum rates across the six most-used corridors are below; note that India retains a taxing right of 12.5% on long-term capital gains in every one of these treaties — capital gains are never "exempt".

The US and Canada treaties each drop the dividend ceiling to 15% only where the recipient holds at least 10% of the voting stock (Article 10); the 25% figure above is the portfolio rate that applies to ordinary retail shareholders. The Singapore treaty's 2017 Protocol restored India's right to tax capital gains on shares acquired on or after 1 April 2017, and carries a Limitation of Benefits clause requiring genuine economic substance.

On the exchange-control side, the Foreign Exchange Management Act, 1999 governs how money crosses the border. Section 6 of FEMA requires Reserve Bank permission for capital-account transactions unless specifically permitted, and the Liberalised Remittance Scheme caps resident outward remittances at USD 250,000 per financial year. FTC is a tax-relief question, but the funds it applies to must still move within these FEMA rails.

Tax Treatment in India

The first thing to settle is who actually claims FTC in India, because the answer surprises many non-residents. The credit under Sections 90, 90A and 91 read with Rule 128 of the Income-tax Rules, 1962 is claimed by a person resident in India — someone taxable here on worldwide income who has already paid tax abroad on part of it. A pure non-resident is taxed in India only on India-sourced income, so for that income India is the source state and the credit is claimed in the country of residence instead, not here.

The mechanism therefore bites hardest for returning NRIs. When a non-resident moves back and becomes Resident, or the intermediate status of Resident but Not Ordinarily Resident (RNOR) applies, foreign income can fall into the Indian net while the host country has already taxed it. That is precisely the FTC scenario. Your first step in any year is to fix your residential status, because it decides whether the credit is even available to you.

India applies the Ordinary Credit method, not the full-credit method. Rule 128 of the Income-tax Rules, 1962 limits the FTC to the lower of two amounts: the foreign tax actually paid, or the Indian tax attributable to that same doubly-taxed income. Any foreign tax above the Indian tax on that income is simply ignored — it is neither refunded nor carried forward to a later year. The credit is allowed against income tax, surcharge and cess, but not against any interest, fee or penalty.

Consider a returning NRI, now Resident, holding US-listed shares that pay a dividend of Rs 10,00,000. The US withholds tax at the 25% portfolio rate, taking USD-equivalent Rs 2,50,000. In India the same dividend is taxed at the individual's slab; assume the 30% bracket plus 4% cess, giving Indian tax of Rs 3,12,000 on that income. The worked credit runs as follows.

Now reverse the slab. If the same dividend attracted Indian tax of only Rs 2,00,000 because the taxpayer sat in a lower bracket, the FTC would be capped at Rs 2,00,000 — the lower figure — and the remaining Rs 50,000 of US tax would be lost entirely. This is the "excess foreign tax ignored" rule in action, and it is why aggressive foreign withholding is not always fully recoverable. You can sanity-check the Indian side of any such computation with the NRI income-tax calculator before you file.

For genuine non-residents with only Indian-source income, the arithmetic runs the other way. India deducts TDS at the treaty-capped rate — for example 12.5% on long-term capital gains — and that Indian tax becomes the foreign-tax credit claimed abroad. Rental income on Indian property is a frequent case; the NRI rental-income tax calculator shows the Indian tax that a host-country return will then credit.

Tax Treatment Abroad

The residence country's own relief article is the other half of the equation. Under the India-US treaty, Article 24 obliges the United States to allow a credit for Indian tax against US tax on the same income; the India-Australia treaty does the same through its Article 23 credit method, and Canada relieves double tax through Section 126 of its domestic Income Tax Act. In each case the host country grants the credit — India, as source state, does not.

Foreign systems apply their own ordinary-credit ceilings, so a mismatch in rates can still leave residual tax. If India taxes an item at 12.5% and the host country would tax it at 20%, the resident typically pays the 7.5% difference at home; if the host rate is lower than India's, the excess Indian tax is usually the part that cannot be recovered abroad.

Timing is the other frequent trap. Countries run different tax years — India's financial year ends on 31 March, the UK's on 5 April, the US calendar year on 31 December — so the income and the foreign tax can fall into different reporting periods. Rule 128 grants the Indian credit in the year the income is offered to tax in India, which may not be the year the foreign authority collected its tax, so foreign assessment and payment proofs must be kept precisely dated.

A Tax Residency Certificate is the document that ties the whole claim together. To access a treaty rate under Section 90, the non-resident must hold a TRC from the country of residence, supplemented by Form 10F where the TRC lacks prescribed particulars. Without it, the payer must apply full domestic withholding rather than the treaty ceiling, and the relief has to be reclaimed later through the return.

Repatriation Mechanics

Relief on paper is only useful if the money can actually be moved, and that is a function of which account holds it. A non-resident's Indian income lands in one of three account types, and their repatriation rules differ materially, as summarised below.

Most FTC-relevant income — rent, dividends, interest and capital gains arising in India — is credited to the NRO account, whose interest is fully taxable and subject to TDS. Repatriation from an NRO account is capped at USD 1 million per financial year and requires a chartered accountant's certificate in Form 15CB plus the electronic declaration in Form 15CA, confirming that the applicable Indian tax has been paid before the remittance leaves.

The NRE and FCNR accounts, by contrast, are freely repatriable and their interest is exempt from Indian tax, which is why foreign earnings and matured foreign-currency deposits are routed through them rather than the NRO. Only tax-paid, India-sourced money should sit in the NRO, since that is the balance the USD 1 million annual ceiling is designed to govern. The NRI repatriation calculator helps map which balance can move and what documentation each transfer needs.

Form 67 is the pivot that connects the tax relief to the funds. Rule 128 requires the FTC statement in Form 67 to be furnished to claim the credit, accompanied by a certificate or statement of the foreign income and the foreign tax paid, together with proof of payment or deduction. CBDT Notification No. 100/2022 dated 18 August 2022 relaxed the deadline: Form 67 may now be filed on or before the end of the relevant assessment year, rather than by the return due date as the earlier rule demanded. Filing the ITR without the matching Form 67 is the fastest way to have an otherwise valid credit struck out.

FAQ

Do I claim Foreign Tax Credit in India or in my country of residence?

It depends on which country is the source of the income and where you are resident. FTC under Sections 90/90A/91 with Rule 128 and Form 67 is claimed by a person resident in India on foreign income already taxed abroad — typically a returning NRI who has become Resident or RNOR. If you are a non-resident earning only Indian-source income, India is the source state and you claim credit for the Indian tax in your country of residence under its relief article, such as Article 24 of the India-US treaty.

What is the difference between bilateral and unilateral relief?

Bilateral relief under Sections 90 and 90A applies where India has a DTAA with the country, and the credit follows the negotiated treaty rate. Unilateral relief under Section 91 applies where no DTAA exists, and India allows a credit computed at the lower of the Indian rate or the foreign rate on the doubly-taxed income. Both use the Ordinary Credit method under Rule 128 of the Income-tax Rules, 1962.

Is the Foreign Tax Credit limited, and what happens to excess foreign tax?

Yes. Under the Ordinary Credit method, FTC is capped at the lower of the foreign tax actually paid or the Indian tax attributable to that same income. Any foreign tax exceeding the Indian tax on that income is ignored entirely — it is neither refunded nor carried forward. In the worked example, a Rs 2,50,000 US withholding against Rs 2,00,000 of Indian tax on the same dividend yields only Rs 2,00,000 of credit, with Rs 50,000 lost.

Are capital gains exempt under any DTAA?

No. In every treaty examined here — USA, UK, UAE, Canada, Singapore and Australia — India retains the right to tax long-term capital gains at 12.5%. Treating DTAA capital gains as "exempt" is a common and costly error; the treaties allocate a reduced or shared taxing right, not a full exemption. The Singapore treaty specifically restored India's taxing right on shares acquired on or after 1 April 2017 through its 2017 Protocol.

Is Form 67 still required if I file my return late?

Form 67 must be furnished to claim FTC under Rule 128. Following CBDT Notification No. 100/2022 dated 18 August 2022, the deadline was relaxed so that Form 67 can be filed on or before the end of the relevant assessment year, rather than by the original return due date. Filing a return that claims credit without the corresponding Form 67 on record risks the credit being disallowed at processing.

How much can I repatriate from my NRO account each year?

Repatriation from an NRO account is capped at USD 1 million per financial year, and each remittance needs a Form 15CB certificate from a chartered accountant plus the Form 15CA declaration confirming Indian tax has been paid. NRE and FCNR balances, holding foreign earnings and foreign-currency deposits, are freely repatriable with exempt interest, which is why India-sourced taxable income is kept in the NRO.

Does FTC cover surcharge and cess as well as income tax?

Yes. Rule 128 allows the Foreign Tax Credit against income tax, surcharge and the 4% health and education cess. It does not, however, extend to any interest, fee or penalty payable under the Income-tax Act, so those liabilities must be met separately and cannot be offset by foreign tax paid.