Foreign tax credit: Form 67 submission date extension alone is no big relief

Individual taxpayers, such as high net worth individuals (HNIs), often have their income portfolio spread across multiple countries.

If these individuals qualify as global residents of India, they are liable to pay tax in India on their incomes earned outside India as well. However, by virtue of the double taxation avoidance agreement between India and the respective country, they can claim credit of foreign taxes paid on such foreign incomes, against the India tax liability.

While there are many aspects relating to foreign tax credit (FTC) that are worth consideration, let’s focus on Form 67.

What is Form 67?

It is a statement of foreign income and foreign taxes paid, which is filed and verified online via an e-filing account, along with the proof of tax payment. The due date to furnish this form was on or before the due date for furnishing the original return.

Through a notification dated August 18, 2022, the government has extended the due date for furnishing FTC from April 1, 2022.

Here is a quick summary of the new due dates to furnish Form 67:

The due date to furnish Form 67 is now on or before the end of the assessment year, relevant to the previous year in which the overseas income has been taxed in India and the return for such assessment year has been furnished within the time specified under Section 139(1) -- i.e., the time limit for filing the original tax return, and Section 139 (4) -- the time limit for filing the belated tax return.

For returns filed under Section 139 (8A), which is the updated return, the time limit to file Form 67 is before filing the return.

The above extension provides a big relief to several taxpayers as they have been facing difficulties in gathering all information/ supporting documents regarding FTC claims before the due date of filing original return.

What about revised returns?

One interesting fact to note in the new provision for the Form 67 due date is that it does not categorically indicate or refer to Section 139(5), a section which provides for filing revised returns.

Does this mean there is no time limit for filing Form 67 in case of revised returns and an individual can file it as and when he/she has the information?

Or, should an individual submit Form 67 before he/she submits revised return to avoid litigation? The latter seems to be the reasonable approach as there have been cases in the past where FTC claims were rejected by the lower level of tax authorities on account of delayed filing of Form 67.

Even though such claims were later allowed by the Tribunal (on the basis that filing of Form 67 is a procedural requirement and cannot result in the denial of the FTC where such claims were legitimate), one had to go through the litigation process to get FTC claims allowed.

What are the changes needed?

In the absence of clarity for revised return, one may be tempted to file a belated return to take the benefit of the extended timeline for filing Form 67, even at the cost of paying the penal fee of Rs 5,000 for delayed filing and denial of carry forward of any loss, if any (except loss from house property).

Therefore, a clarification from the government on the Form 67 due date for revised return would really help taxpayers and will end the risk of prolonged litigation.

Currently, there is a mandatory requirement of e-verification for Form 67 through an active Indian mobile number or listed bank for net banking or Aadhaar number or Digital Signature Certificate etc.

This extended time limit may still not help those individuals who do not have access to any of these prescribed ways of e-verification. Such individuals include foreign nationals who left India after completing their India assignment.

It would really help if either manual verification (the way return acknowledgement Form ITR V is signed and sent to CPC) or e-verification through overseas mobile number or the registered email ID of the taxpayer is allowed.

(Views expressed are personal)