Form 67 Foreign Tax Credit: AY 2026-27 Guide
Foreign Tax Credit (FTC) relieves you of double taxation when the same income is taxed in both a foreign country and India. To claim FTC, you must file Form 67 on the e-filing portal, ideally before or with your ITR (Rule 128 allows it up to the end of the assessment year if the return is filed in time or as a belated return). Many professionals earning foreign income omit this step and pay unnecessary double tax.
This guide covers what FTC is, who needs Form 67, the step-by-step filing process, how to reconcile foreign and Indian tax, and common mistakes that cost you money.
What Is Foreign Tax Credit (FTC)?
Definition: Relief for Indian tax residents who pay tax on income in a foreign country AND that same income is also taxable in India.
Mechanism: FTC credit = lower of (a) Indian tax on that foreign income or (b) foreign tax actually paid.
Example:
- You are resident in India and earned Rs 50 lakh salary for work in the USA, on which about Rs 10 lakh of US income tax was paid
- That income is also taxable in India. Taking taxable income as Rs 50 lakh, under the new regime for FY 2025-26: slab tax up to Rs 24 lakh = Rs 3,00,000, plus 30% of Rs 26 lakh = Rs 7,80,000, total Rs 10,80,000; plus 4% cess = Rs 11,23,200 (no surcharge, since income does not exceed Rs 50 lakh)
- FTC credit = lower of Rs 11,23,200 (Indian tax on that income) or Rs 10,00,000 (foreign tax) = Rs 10,00,000
- Net Indian tax owed: Rs 1,23,200
Without FTC: You pay Rs 11,23,200 India tax + Rs 10,00,000 US tax = Rs 21,23,200 total. With FTC: Rs 11,23,200 total. Savings = Rs 10 lakh.
Who Needs Form 67
Required if:
- You are an Indian tax resident
- You earned income in a foreign country (salary, business, investment)
- You paid income tax (or equivalent) in that foreign country
- That foreign income is also taxable in India
Common situations:
- ESOP holders: US employer withholds W-2 income tax; income also taxable in India
- Expatriates on foreign assignment: Paid foreign tax; also resident in India
- Freelancers with foreign clients: Foreign withholding tax deducted; income taxable in India
- NRI with foreign-remitted dividends: Foreign dividend tax withheld; if remitted to India, taxable
- Business profits from foreign operations: Foreign corporate tax paid; also taxable in India
NOT required if:
- You are NRI (only Indian-source income taxable in India; foreign income exempt)
- You paid no foreign tax (no relief available)
- The treaty uses the exemption method for that income, so India does not tax it at all (where the treaty gives relief by credit, as the India-US treaty does, you still need Form 67)
Legal Basis: Section 90/91, Rule 128
Section 90 (DTAA countries): FTC available if DTAA exists. Credit limited to lower of Indian tax or foreign tax.
Section 91 (Non-DTAA countries): Relief for foreign tax paid, computed at the Indian rate of tax or the foreign rate, whichever is lower, on the doubly taxed income.
Rule 128 (Income Tax Rules, 1962): Detailed procedure for computing FTC and filing.
Filing time (Rule 128(9), as amended by Notification 100/2022): Form 67 must be furnished on or before the end of the relevant assessment year (31 March 2027 for AY 2026-27), provided the ITR is filed within the Section 139(1) due date or as a belated return under Section 139(4). For an updated return, file Form 67 before the ITR-U.
Form 67: Step-by-Step Filing (Critical Process)
Step 1: Download Form 67
- Go to www.incometax.gov.in
- Login with PAN
- Download section → Forms → Form 67
- Or directly from e-filing portal under "Forms and Utilities"
Step 2: Gather Foreign Tax Certificate
Required documents:
- W-2 form (for USA employment income)
- Tax certificate/Tax voucher (for dividends, interest)
- Salary certificate from foreign employer showing foreign tax withheld
- Foreign tax authority statement (HMRC statement, IRS transcript, etc.)
Key info to extract:
- Gross foreign income (in local currency)
- Foreign tax paid (in local currency)
- Period of income (date range)
Step 3: Convert to INR
Rule 128 prescribes the SBI telegraphic transfer (TT) buying rate on the last day of the month immediately before the month in which the foreign tax was deducted or paid. Average annual rates or the RBI reference rate are not the prescribed basis.
Example:
- US salary: $100,000
- US tax paid: $25,000
- Exchange rate (illustrative SBI TT buying rate, applied month by month where tax is withheld monthly): 1 USD = Rs 80
- INR equivalent of foreign income: Rs 80 lakh
- INR equivalent of foreign tax: Rs 20 lakh
Step 4: Fill Form 67 Details
The form asks, country by country:
- Country name (USA, UK, UAE, etc.)
- Nature of income (salary, business, dividends, etc.)
- Income from that country offered to tax in India (INR)
- Foreign tax paid (INR) and the tax payable in India on that income
- The DTAA article under which relief is claimed (Section 90), or Section 91
A separate part covers carry-back of losses and disputed tax, where relevant. You also attach the statement of foreign income and the proof of foreign tax paid.
Step 5: Upload Foreign Tax Certificate
Attach:
- Foreign tax payment certificate (W-2, tax receipt)
- Bank statement showing tax payment
- Exchange rate working (SBI TT buying rates used)
Step 6: Submit on Portal
Click Submit. Portal issues acknowledgment with submission timestamp.
Important: Best practice is to submit Form 67 before the ITR. The outer limit for AY 2026-27 is 31 March 2027, provided the ITR is filed by the due date (31 July 2026 for ITR-2, 31 August 2026 for non-audit ITR-3) or as a belated return by 31 December 2026.
Step 7: Reflect FTC in ITR
After Form 67 is filed, when filing ITR:
- Schedule FSI: Declare foreign source income (country, amount, tax paid)
- Schedule TR: Claim FTC credit
FTC credit = lower of (a) Indian tax on that foreign income or (b) foreign tax paid (as per Form 67).
Common Mistakes (Lose Your FTC!)
Mistake 1: Filing Form 67 after ITR
Many file ITR first and forget Form 67. CPC then processes the return without the credit and raises a demand. Since Notification 100/2022, Form 67 filed by the end of the assessment year is valid (if the return was filed in time or as a belated return), but you then have to seek rectification to get the credit.
Prevention: File Form 67 first, then the ITR, so the credit is in the return from day one.
Mistake 2: Wrong exchange rate
Using an exchange rate other than the prescribed SBI TT buying rate can inflate or deflate the FTC credit, and the AO may reduce the claim.
Prevention: Use the SBI TT buying rate on the last day of the month before the month in which the foreign tax was deducted or paid.
Mistake 3: Including non-taxable foreign income
Some foreign income may be exempt in India (e.g., NRI exemption). Claiming FTC on exempt income is incorrect.
Prevention: Verify if foreign income is taxable in India under your residential status before claiming FTC.
Mistake 4: Claiming FTC on FICA taxes (US)
In USA, Social Security and Medicare taxes (FICA) are deducted from salary. These are NOT income taxes; FTC not available for FICA.
Only claim FTC on:
- US federal income tax withheld (Form 1040)
- US state income tax withheld
Prevention: Use Form 1040 for FTC calculation, not W-2 gross/net (W-2 includes FICA).
Mistake 5: No exchange rate documentation
If AO questions the exchange rate used, you must produce proof. Undocumented rate leads to denial.
Prevention: Keep a record of the SBI TT buying rates used for each month.
ESOP-Specific FTC Guidance
Situation: US employer grants RSUs/ESOPs. Upon vesting, US employer withholds W-2 income tax (~30-40% combined federal+state).
FTC claim:
- Gross vesting amount (INR): Rs 50 lakh, taxed in India as a salary perquisite
- US income tax withheld (W-2): Rs 15 lakh
- Indian tax on it, assuming it all falls in the 30% slab: Rs 15 lakh + 4% cess = Rs 15.6 lakh (surcharge, if your total income crosses Rs 50 lakh, would add to this)
- FTC = lower of Rs 15.6 lakh (Indian tax) or Rs 15 lakh (US tax) = Rs 15 lakh
- Net Indian tax on the RSU income: Rs 0.6 lakh
Key point: FICA (Social Security + Medicare, typically 7.65%) is NOT eligible for FTC. Only income tax (federal + state) qualifies.
FTC Limitations
Year of credit: Under Rule 128(1), credit is allowed in the Indian year in which the income is offered to tax, even if the foreign country taxed it in a different period. It cannot be carried forward to other years.
Capped by Indian tax on that income: FTC cannot exceed the Indian tax (including surcharge and cess) payable on that income. If foreign tax is higher, the excess is lost. FTC is not allowed against interest, fees or penalties.
Only on income actually taxed in India: If income is exempt in India (e.g., NRI's foreign-source dividend), no FTC available.
Key Takeaways for Action
- File Form 67 before your ITR. Outer limit: end of the assessment year, if the ITR is on time or belated.
- Gather foreign tax certificate. W-2, tax receipt, or tax authority statement.
- Convert using the SBI TT buying rate prescribed in Rule 128.
- Upload certificate to portal. Proof is required.
- Claim FTC in ITR Schedule TR. Lower of Indian tax or foreign tax.
- Keep records. The AO may ask for proof of foreign tax payment and the exchange rates used.
Sections 90 and 91, Income Tax Act 1961; Rule 128, Income Tax Rules 1962, as amended by CBDT Notification 100/2022; W-2 and Form 1040 guidance (US).
