Foreign Tax Credit in India 2026: How Form 67 Lets You Claim Credit for Tax Paid Abroad Under a DTAA

By Nitish Bharadwaj · Published Sep 17, 2026 · 6 min

A resident Indian with foreign-sourced income — RSU sales, overseas rental income, or freelance payments from a foreign client — can be taxed on it twice: once abroad at source, and again in India. Foreign Tax Credit under Rule 128 fixes this by letting you offset foreign tax already paid against your Indian liability on that income, capped at whichever is lower. Form 67 is the filing that documents the claim, generally due on or before your ITR deadline. This guide covers the calculation, Form 67's documents, and what happens if you file late.

Sell a batch of RSUs from a US employer and the broker withholds American tax before a single rupee reaches your account. Report that same sale on your Indian return without doing anything else, and it gets taxed again — because a resident Indian is taxed on worldwide income, and the fact that another country already took its share doesn't automatically stop India from claiming its own. Foreign Tax Credit exists precisely to prevent this double bite, but it isn't automatic either. It has to be actively claimed, and the filing that makes the claim valid — Form 67 — has its own deadline and its own paperwork.

Why the Same Income Gets Taxed Twice in the First Place

A resident Indian is taxed on global income under the Income Tax Act — a US capital gain, UK rental income, or a freelance invoice paid by a client in Germany all show up on an Indian return regardless of where the money was earned. The country where that income actually arose usually taxes it too, at source or through its own filing system, since most countries tax income earned within their own borders regardless of the earner's residency. Without relief, the same rupee of income is taxed once by the source country and again by India — Foreign Tax Credit (FTC), governed by Rule 128 of the Income Tax Rules, is the mechanism that lets you offset the foreign tax already paid against your Indian tax liability on that same income.

The Credit Is Capped — It's Not a Rupee-for-Rupee Refund

FTC doesn't simply hand back whatever tax you paid abroad. The credit allowed against your Indian tax liability, for each source of foreign income, is the lower of two figures: the actual tax paid or deducted in the foreign country on that income, or the Indian tax payable on that same income computed at your applicable Indian rate. If the foreign rate is higher than your Indian rate on that slice of income, the excess foreign tax simply isn't creditable — India won't refund tax someone else's government collected beyond what India itself would have charged.

Here, the full foreign tax is creditable because it's the smaller number — the remaining ₹1,50,000 is what India still collects, since its own rate on that income is higher. Flip the rates — a foreign tax rate above India's — and the credit caps out at the Indian tax figure, leaving some foreign tax paid that never comes back in any form.

Form 67: The Filing That Makes the Claim Valid

Form 67 is filed electronically on the income tax e-filing portal, and under Rule 128(9) it's generally required on or before the due date for filing your return under Section 139(1) — it isn't a document you attach after filing, it's a separate submission that has to go in first, or alongside your return. The form requires details of the foreign income earned, the foreign tax paid or deducted, the specific DTAA article being relied on (where one applies), and supporting evidence — typically a statement from the foreign tax authority or the deductor, or a certificate from the person responsible for deducting tax abroad, along with proof of the actual tax payment such as a payslip, broker statement, or foreign tax return.

Who Actually Needs to Do This

• Anyone who sold RSUs or ESPP shares from a foreign employer and had tax withheld abroad on the gain — see our RSU taxation guide and ESPP taxation guide for how that income is computed in India before FTC is applied against it
• Resident Indians receiving rental income or a pension from a property or job held abroad
• Freelancers and consultants invoicing overseas clients who withhold tax at source before payment
• A returning NRI still receiving genuinely foreign-sourced income during the years their residential status transitions — our RNOR status guide covers how that transition window itself already limits which foreign income India taxes in the first place

Don't Confuse This With TCS on Foreign Remittances

Foreign Tax Credit and TCS under the Liberalised Remittance Scheme (LRS) solve opposite problems and are easy to mix up. FTC is about tax another country already deducted on income you earned there, credited against Indian tax on that same income. TCS under LRS is a tax India itself collects when you send money out of the country — for travel, education, or investment abroad — and it isn't a tax on income at all; it's an advance collected against your future tax liability, fully adjustable when you file. Our TCS on foreign remittance guide covers how that separate mechanism works and how to claim the TCS credit back.