Paid Tax Abroad? File Form 67 to Claim Foreign Tax Credit Before Your ITR Due Date

You spent a year working in Dubai or consulting for a US client, the tax was already deducted overseas, and now the Indian return wants you to declare that same income all over again. The relief exists, but it does not arrive automatically. To claim credit for tax paid abroad you must furnish Form 67 under Rule 128 of the Income-tax Rules, 1962, and miss the window and the Income Tax Department can disallow the entire credit. This Q&A walks through who must file Form 67, by when, and exactly how the credit is computed on a FY 2025-26 salary.

The Scenario

Picture a resident and ordinarily resident taxpayer for FY 2025-26 (assessment year 2026-27) who earned a salary in India plus income taxed in a second country - say USD-denominated consulting receipts on which 25% US withholding tax was already paid. Because India taxes a resident's global income, that overseas income is taxable here too, which is the textbook case of double taxation that the foreign tax credit (FTC) is meant to neutralise. The route to relief runs through a Double Taxation Avoidance Agreement where one exists, and through Section 91 of the Income-tax Act, 1961 where it does not.

The catch is procedural. The FTC is not a tick-box inside the ITR; it is a separate statutory declaration. Rule 128(9) requires the particulars of foreign income and foreign tax to be furnished in Form 67, filed online through the e-Filing portal, before the credit can be allowed in the return. A taxpayer who simply enters the foreign income in Schedule FSI and the credit in Schedule TR, but never files Form 67, is at real risk of having the credit struck out when the return is processed under Section 143(1). Your residential status decides whether global income is taxable at all, so confirm it before you begin.

Statutory Answer

The governing provision is Rule 128 of the Income-tax Rules, 1962, read with Section 90 (treaty countries) or Section 91 (non-treaty countries) of the Income-tax Act, 1961. Rule 128(1) grants a resident credit for foreign tax paid in the year the corresponding income is offered to tax in India. Rule 128 then caps that credit and denies it for any foreign tax that is disputed. The particulars themselves travel in Form 67, mandated by Rule 128(8) and (9).

Two limits in Rule 128 do most of the work. First, the credit is restricted to the lower of the foreign tax paid and the Indian tax payable on that same doubly-taxed income - you never recover more than India itself would have charged. Second, the credit is available against Indian tax, surcharge and cess, but Rule 128 expressly bars it against any interest, fee or penalty. Rule 128(5) then fixes the exchange rate: foreign tax is converted into rupees at the telegraphic transfer buying rate on the last day of the month immediately preceding the month in which the tax was paid or deducted.

On timing, the position changed and many taxpayers still quote the old rule. Rule 128(9) as it originally stood tied Form 67 to the Section 139(1) due date. The Central Board of Direct Taxes relaxed this from assessment year 2022-23 onwards: Form 67 may now be furnished on or before the end of the relevant assessment year, provided the return itself is filed within the time allowed by Section 139(1) or the belated-return window of Section 139(4). For an updated return under Section 139(8A), Form 67 must accompany it, filed on or before the date the updated return is furnished. The table below sets out the operative deadlines for AY 2026-27.

Note that the outer limit is the end of the assessment year, but the practical safe date is the day you file the ITR, because the portal expects the credit claimed in the return to be backed by an already-filed Form 67. The official Form 67 user manual on incometax.gov.in confirms the form is filed only online, through e-File then Income Tax Forms, and must be completed with e-verification by Aadhaar OTP, net banking or DSC before it is treated as submitted.

Worked Resolution

Take Priya, a resident and ordinarily resident individual for FY 2025-26 who has opted for the new tax regime. Her figures are a salary of Rs 20,00,000 in India and foreign consulting income that converts, at the Rule 128(5) telegraphic transfer buying rate, to Rs 8,00,000, on which the overseas tax authority withheld Rs 2,00,000 (25%). We first compute her Indian tax on total income, then apply the Rule 128 lower-of cap.

Under the new regime her standard deduction is Rs 75,000, so her total income is Rs 20,00,000 plus Rs 8,00,000 minus Rs 75,000, which is Rs 27,25,000. Applying the FY 2025-26 new-regime slabs - nil up to Rs 4,00,000, then 5%, 10%, 15%, 20%, 25% and 30% across the successive Rs 4,00,000 bands - the slab tax works out as follows. Because her total income exceeds Rs 12,00,000, the Section 87A rebate (up to Rs 60,000 in the new regime for FY 2025-26) does not apply, and because it is below Rs 50,00,000 there is no surcharge.

Now the Rule 128 lower-of cap. The Indian tax attributable to the Rs 8,00,000 of foreign income is the average-rate share: Rs 8,00,000 divided by Rs 27,25,000, multiplied by the total Indian tax of Rs 4,13,400, which is approximately Rs 1,21,365. The foreign tax actually paid was Rs 2,00,000. The FTC is the lower of the two, so Priya may claim Rs 1,21,365.

Her net Indian tax payable therefore falls from Rs 4,13,400 to Rs 2,92,035 once the Rs 1,21,365 credit is set off. The remaining Rs 78,635 of US tax (Rs 2,00,000 minus Rs 1,21,365) is not refundable by India and cannot be carried forward - it is simply the price of the overseas rate exceeding India's. You can reproduce this slab arithmetic for your own figures on the Oquilia income tax calculator and compare regimes on the new regime calculator; if part of your foreign income is a capital gain, model it separately on the capital gains calculator.

To lock in that Rs 1,21,365, Priya attaches to Form 67 a statement of the foreign income and tax, plus proof of payment - either a certificate from the foreign tax authority or from the person deducting the tax, or her own signed evidence of the tax paid. She files the form, e-verifies it, and keeps the Transaction ID and Acknowledgement Number the portal issues on successful submission. Only then does the credit entered in Schedule TR of her ITR stand up to processing.

FAQ

What happens if I file Form 67 after I have already filed my ITR?

As long as Form 67 is furnished on or before the end of the assessment year - 31 March 2027 for AY 2026-27 - and your return was filed within the Section 139(1) or 139(4) window, Rule 128(9) still allows the credit. In practice, though, the credit claimed in a return filed before Form 67 is uploaded may be disallowed in the Section 143(1) intimation, forcing a rectification. File the form first, or on the same day.

Can I claim the foreign tax credit without filing Form 67 at all?

No. Rule 128(9) makes furnishing Form 67 a condition for the credit. The claim in Schedule TR of the ITR is not enough on its own; several appellate rulings reported on indiankanoon.org have treated the filing as directory rather than mandatory where the return was timely, but you should not rely on litigation - file the form within the deadline.

I missed the end-of-assessment-year deadline. Is the credit lost forever?

Not necessarily. You can apply for condonation of delay under Section 119(2)(b), explaining the reason, and the tax authority may admit a late Form 67 if the delay was for a genuine cause. There is no automatic right to it, so treat the end of the assessment year as the real cut-off.

What exchange rate do I use to convert the foreign tax into rupees?

Rule 128(5) fixes it: the telegraphic transfer buying rate on the last day of the month immediately preceding the month in which the foreign tax was paid or deducted. You do not use the rate on the payment date or an average annual rate.

Is the foreign tax credit the same as treating the income as exempt under a DTAA?

No. Even where a Double Taxation Avoidance Agreement applies, India generally retains the right to tax the income and then gives credit for the foreign tax under Section 90 and Rule 128; capital gains, for instance, are not made exempt - India can tax them at 12.5%. The FTC reduces your Indian tax; it does not remove the income from the return.

Can the credit exceed the Indian tax on that income?

No. Rule 128 caps the credit at the lower of the foreign tax paid and the Indian tax payable on the doubly-taxed income. In Priya's case that cap was Rs 1,21,365 against Rs 2,00,000 of foreign tax, leaving Rs 78,635 uncredited.

Does a bigger foreign tax credit increase my refund?

Only up to your Indian liability. The credit sets off tax, surcharge and cess but not interest or penalty, and it cannot create a tax refund of foreign tax out of the Indian exchequer. If your TDS and advance tax already covered the net liability, the FTC can enlarge the refund of Indian tax, but never beyond Indian tax actually paid.