| Authored by R & D Law Chambers LLP | Practice led by Ravish Bhatt, Dual-qualified lawyer (India and England & Wales) | Bar Council of Gujarat, Enrolment G/504/2008 | SRA (non-practising) Registration No. 492 477 | ADIT, Chartered Institute of Taxation, London
Published: 6 September 2026 | Last reviewed: 19 September 2026 |
| Instruments. This article states the position under the Income-tax Act, 2025, which replaced the Income-tax Act, 1961 with effect from 1 April 2026, read with the Income-tax Rules, 2026, notified on 20 March 2026 by G.S.R. 198(E). Foreign tax credit is governed by Rule 76 of those Rules, which replaced Rule 128 of the Income-tax Rules, 1962. Income of previous year 2025-26 (assessment year 2026-27) and earlier years remains governed by the 1961 Act and Rule 128, and credit for it is claimed in Form 67. Rule 76, Form No. 44 and Form No. 45 apply to income of tax year 2026-27 onwards.
Scope. We advise on Indian law only, for businesses anywhere, wherever a matter has an India connection. Foreign law is described factually with attribution and is never analysed as advice. |
| Short answer. Foreign tax credit in India is decided by Rule 76 of the Income-tax Rules, 2026, not by the treaty alone, and it runs on two clocks. The ordinary claim needs Form No. 44 within twelve months from the end of the tax year. A foreign tax that was disputed needs Form No. 45 within six months from the end of the month in which the dispute was finally settled. Both clocks carry over from Rule 128 of the 1962 Rules. What is new is Form No. 45 itself, and it can be filed only after Form No. 44 for that tax year. Credit for income of previous year 2025-26 and earlier is still claimed under Rule 128 in Form 67. |
Index of Topics
- The entitlement sits in the Act, the credit sits in the Rule
- What counts as foreign tax, and why a treaty narrows it
- The year the credit belongs to, and income taxed across years
- What the credit cannot be set against
- Two caps, computed source by source
- Converting the foreign tax into rupees
- A disputed foreign tax, and the six-month door out of the bar
- Form No. 44, the twelve-month clock, and the condition attached to it
- Minimum alternate tax and alternate minimum tax under section 206
- Where credit stops and the Mutual Agreement Procedure begins
- The entitlement sits in the Act, the credit sits in the Rule
| In short: Sections 159 and 160 of the Income-tax Act, 2025 create the entitlement to relief from double taxation. Rule 76 of the Income-tax Rules, 2026 decides whether a credit is actually allowed, for which year, against which liability and up to what amount. A resident who has the entitlement and misses the Rule has no credit. |
Section 159 empowers the Central Government to enter into an agreement with a foreign country or specified territory, and section 159(3)(a) names relief in respect of income taxed in both as one of its purposes. Section 160 covers countries with which no agreement exists, and computes relief at the Indian rate of tax or the rate of tax of the said country, whichever is the lower. Section 160(3) defines both rates.
Those provisions give the taxpayer a right. They do not give it a credit. Rule 76(1) does that, and carries three limitations. Credit goes to an assessee “being a resident”. It is allowed “in the tax year in which the income corresponding to such tax has been offered to tax or assessed to tax in India”, so it follows the Indian taxing year and not the year of foreign payment. And it is allowed “in the manner and to the extent as specified in this rule”, which makes every sub-rule a condition of entitlement rather than a description of practice.
Rule 76 replaced Rule 128 of the Income-tax Rules, 1962, and the rule-making power moved from section 295(2)(ha) of the 1961 Act to section 533(2)(q) of the 2025 Act. Rule 128 and Form 67 are not spent. They continue to govern income of previous year 2025-26 (assessment year 2026-27) and earlier years, so a resident filing a return in 2026 claims credit in Form 67. Rule 76 and Form No. 44 govern tax year 2026-27 onwards.
- What counts as foreign tax, and why a treaty narrows it
| In short: Rule 76(3) splits the definition in two. For a country with which India has an agreement, the creditable foreign tax is the tax covered under that agreement. For every other country it is tax in the nature of income-tax referred to in section 160(3)(a). A levy the agreement does not cover is not creditable, whatever the foreign statute calls it. |
Rule 76(3)(a) applies where India has an agreement in terms of section 159, and the creditable tax is “the tax covered under the said agreement”. Rule 76(3)(b) applies elsewhere, and the creditable tax is that payable under the law in force there in the nature of income-tax referred to in section 160(3)(a), which includes excess profits tax and business profits tax.
The asymmetry runs against intuition. In a treaty country the operative list is the taxes covered article, so a levy that is unmistakably a tax on income under the foreign statute falls outside Rule 76(3)(a) if the agreement does not cover it. Elsewhere there is no list, and the test is the character of the charge.
The taxes covered article therefore deserves reading before the credit is computed, not after the return is filed. It is the first place a claim fails.
- The year the credit belongs to, and income taxed across years
| In short: Under Rule 76(1) the credit belongs to the tax year in which the corresponding income is offered to tax or assessed to tax in India. Where that income is taxed in India across more than one tax year, Rule 76(2) allocates the credit across those years in the same proportion as the income. |
This separates the Indian credit from the foreign payment. Foreign tax deducted in one calendar year, on income entering the Indian computation in a later tax year, is credited in that later year. The trigger is the Indian taxing event.
Rule 76(2) requires the credit to be allowed across those years in the same proportion in which the income is offered to tax or assessed to tax. It is a proportionality rule and not an election, so the credit cannot be front-loaded into the first year to accelerate relief.
- What the credit cannot be set against
| In short: Rule 76(4) allows the credit against the amount of tax, surcharge and cess payable under the Act. It expressly does not allow it “in respect of any sum payable by way of interest, fee or penalty”. Foreign tax cannot be used to extinguish an Indian interest or penalty liability. |
The exclusion is absolute on the face of the sub-rule. Where a taxpayer carries both a tax and an interest liability for the same year, the credit reduces the first and leaves the second intact. It bites hardest where the credit exceeds the tax and the surplus looks available against the balance of the demand. It is not.
- Two caps, computed source by source
| In short: Rule 76(7) computes the credit separately for each source of income arising from each country, and Rule 76(7)(a) caps it twice. The credit is the lower of the tax payable under the Act on that income and the foreign tax paid on it. Where the foreign tax paid exceeds the amount payable under the agreement, that excess is ignored. |
The credit is “the aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory outside India”. Computation is granular: income from one country is not pooled, and a source taxed heavily abroad cannot be blended with one taxed lightly to lift the credit. Both caps operate on that same source.
The treaty cap is the one that surprises taxpayers. Where a foreign payer withholds at its domestic rate because the treaty rate was not substantiated in time, the excess is not creditable here. India credits what the treaty permitted the other country to take, not what it took, and the difference has to be recovered by a refund claim there. The inbound mirror of this is dealt with in our work on withholding tax on payments to non-residents, where the same failure of documentation produces the same over-deduction.
- Converting the foreign tax into rupees
| In short: Rule 76(7)(b) converts the foreign tax 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. Rule 76(18) takes the meaning of that expression from Rule 207. |
The conversion date is fixed by the foreign tax event, not the Indian one. Neither the date the income was earned, nor the date it was remitted, nor the date it entered the Indian computation bears on the arithmetic. Where foreign tax on one stream is deducted across several months the rule applies month by month, because it speaks of “the month in which such tax has been paid or deducted” and not of an annual average.
- A disputed foreign tax, and the six-month door out of the bar
| In short: Rule 76(5) denies credit for any amount of foreign tax “which is disputed in any manner by the assessee”. Rule 76(6) restores it, but only where evidence of settlement, evidence that the liability has been discharged and an undertaking against any refund are furnished within six months from the end of the month in which the dispute is finally settled. |
The bar is drawn widely. It is not confined to a formal appeal, nor to a dispute about the whole of the tax, because it reaches “any amount of foreign tax or part thereof” disputed “in any manner”. A protective challenge abroad, on an amount the taxpayer has nonetheless paid, brings that amount within it.
Rule 76(6) is the way out, on three conditions: evidence of settlement, evidence that the liability has been discharged, and an undertaking that no refund of that amount has directly or indirectly been claimed or will be claimed. Where all three are furnished in time, the credit is allowed for the year the income was taxed in India, which may be several years before the settlement.
The clock itself is not new. The proviso to Rule 128(4) of the 1962 Rules set the same six-month period and the same three conditions in nearly identical words, and Form 67 asked in Part B whether credit had been claimed for any foreign tax under dispute. What is new is the machinery. Rule 128 prescribed no form for the settlement evidence. Rule 76(15) now requires an intimation in Form No. 45, with evidence of settlement including evidence of payment, and the Income Tax Department records that Form No. 45 has no corresponding form under the Income-tax Rules, 1962.
Form No. 45 does not stand alone. The Department states that Form No. 44 should already have been filed for the relevant tax year before Form No. 45 is filed. The form bears this out: it calls for the acknowledgement number of that Form No. 44, carries its income and tax columns over from Form No. 44 in non-editable form, and refers the settlement evidence to Sl. No. 7 of the Table in section 288(1) of the Act read with Rule 76(6). Rule 76(17) then ties the accountant verification of Form No. 45 to whether the Form No. 44 for that year required one.
This produces a second trap. A resident whose entire foreign tax for a year was in dispute has no credit to claim in Form No. 44, and may therefore file none. On settlement there is then no Form No. 44 for Form No. 45 to build on, and by that time the twelve-month period for Form No. 44 under Rule 76(12) may have closed. Rule 76 does not say this in terms; it is our reading of the Department’s sequence and the design of Form No. 45. The safer course is to file Form No. 44 for that year within time, disclosing the foreign income, even where no credit is claimed in it.
| The trap. The six-month period in Rule 76(6) runs from the end of the month in which the dispute is finally settled. It does not run from the assessee’s knowledge of the settlement, from the receipt of a foreign order, from the end of the Indian tax year, or from any Indian filing date. A foreign proceeding closing is what starts an Indian clock, and the taxpayer whose foreign advisers do not report the closing promptly can lose a credit on tax that was correctly paid and never in doubt. |
- Form No. 44, the twelve-month clock, and the condition attached to it
| In short: Rule 76(12) requires Form No. 44 and the supporting certificate within twelve months from the end of the tax year in which the income was offered to tax or assessed to tax in India, and requires the return for that year to have been furnished within the time specified in section 263(1) or (4). The second condition does the harder work. |
Rule 76(10) requires two documents: Form No. 44, being a statement of the foreign income offered to tax and of the foreign tax deducted or paid on it, verified in the manner specified in it; and a certificate or statement specifying the nature of the income and the tax deducted or paid, from the foreign tax authority, the person responsible for deduction, or the assessee itself. The third option matters, because where a foreign revenue will not certify and a foreign payer will not sign, a statement signed by the assessee is contemplated by the Rule.
Rule 76(11) conditions its validity: it must be accompanied by an acknowledgement of online payment, a bank counterfoil or a challan where the assessee paid, or proof of deduction where the tax was deducted.
Rule 76(12) fixes the timing and couples it to the return: Form No. 44 and the certificate within twelve months from the end of the relevant tax year, and the return for that year furnished within the time specified under section 263(1) or (4). The second limb is the more dangerous. A resident filing outside those windows does not merely incur the ordinary consequences of late filing; on the face of Rule 76(12) the return condition for the credit is not met.
Rule 76(13) is the one accommodation. Where the return is an updated return under section 263(6)(a), Form No. 44 and the certificate, so far as they relate to income included in it, are to be furnished on or before the date that return is furnished. The filing must accompany the update, not follow it.
The period is not new. Rule 128(9) of the 1962 Rules, as amended, required Form 67 on or before the end of the assessment year relevant to the previous year, which is the same twelve months, on the same condition that the return had been furnished within the time specified under section 139(1) or 139(4), and with the same accommodation for an updated return under section 139(8A).
Rule 76(14) runs the obligation the other way. Form No. 44 is also to be furnished where a carry backward of loss, a revision of return or any other reason results in a refund of foreign tax already credited: a reporting duty triggered by a later event, with no natural place in an annual cycle.
Rule 76(16) requires verification by an accountant as defined in section 515(3)(b) where the assessee is a company, and otherwise where the foreign tax paid for the tax year equals or exceeds one lakh rupees. Rule 76(17) carries that across to Form No. 45.
- Minimum alternate tax and alternate minimum tax under section 206
| In short: Rule 76(8) allows foreign tax credit against tax payable under section 206, the special provision for minimum alternate tax and alternate minimum tax, in the same manner as against tax under the normal provisions. Rule 76(9) provides that any excess of the section 206 credit over the normal-provisions credit is ignored in computing tax credit under section 206. |
Section 206 sits in Chapter XIII and charges minimum alternate tax and alternate minimum tax. Rule 76(8) makes the credit available against it on the same footing as against tax under the normal provisions.
Rule 76(9) then closes the arbitrage. Where the credit available against section 206 tax exceeds that available against the normal provisions, the excess is ignored in computing tax credit under section 206(1)(m) to (p) and section 206(2)(e) to (h). It relieves the current year and does not convert into carried-forward tax credit. It is used in the year or lost.
- Where credit stops and the Mutual Agreement Procedure begins
| In short: Foreign tax credit answers a question about two taxes each lawfully imposed. It does not answer a question about taxation that is not in accordance with a treaty. Where the complaint is that one country has taxed what the treaty allocated to the other, the route is the Mutual Agreement Procedure and not Rule 76. |
The two are not substitutes. Rule 76 assumes both countries were entitled to tax and allocates the burden accordingly. Where that premise fails, no computation under Rule 76 produces the right answer, and the remedy lies in the competent authority process, treated with its triggers, limitation period and interaction with a domestic appeal on our page for the Mutual Agreement Procedure in India.
They meet at one point, and it is timing. Where the foreign tax is itself disputed while such a process runs, Rule 76(5) bars the credit and Rule 76(6) revives it only on the six-month clock above. Relief pursued abroad has an Indian filing obligation waiting at the end of it.
Form No. 44 and Form No. 45 compared
| Form No. 44 | Form No. 45 | |
| Prescribed by | Rule 76(10)(a) | Rule 76(15) |
| Purpose | Statement of foreign income offered to tax and of foreign tax deducted or paid on it | Intimation that a dispute regarding foreign tax has been settled, where credit was not claimed |
| Time limit | Twelve months from the end of the tax year in which the income was taxed in India, with the return furnished within the section 263(1) or (4) window | Six months from the end of the month in which the dispute is finally settled |
| Accountant verification | Company, or foreign tax of one lakh rupees or more, under Rule 76(16) | Where the Form No. 44 for that year required it, under Rule 76(17) |
| Precondition | Return for the tax year furnished within the section 263(1) or (4) window, under Rule 76(12) | Form No. 44 already filed for the relevant tax year |
| Predecessor | Form 67 under Rule 128, Income-tax Rules, 1962, which still governs income of previous year 2025-26 and earlier | None as a form; the six-month condition it serves was in the proviso to Rule 128(4) |
Frequently Asked Questions
Who can claim foreign tax credit in India?
Only a resident. Rule 76(1) of the Income-tax Rules, 2026 allows credit to “an assessee, being a resident” for foreign tax paid in a country or specified territory outside India, by way of deduction or otherwise, in the tax year in which the corresponding income is offered to tax or assessed to tax in India. A non-resident has no claim under Rule 76, whatever tax it has paid elsewhere on the same income.
Which foreign taxes are creditable?
For a country with which India has an agreement under section 159, the tax covered under that agreement, by Rule 76(3)(a). For any other country, tax payable under the law in force there in the nature of income-tax referred to in section 160(3)(a), which includes excess profits tax and business profits tax. A levy the agreement does not cover is not creditable even if the foreign statute calls it income tax.
By when must Form No. 44 be filed?
Within twelve months from the end of the tax year in which the income was offered to tax or assessed to tax in India, under Rule 76(12), and the return for that year must have been furnished within the time specified in section 263(1) or (4). For an updated return under section 263(6)(a), Rule 76(13) requires Form No. 44 on or before the date that return is furnished.
Can credit be claimed for a foreign tax that is in dispute?
Not while the dispute is alive. Rule 76(5) denies credit for any foreign tax disputed in any manner by the assessee. Rule 76(6) allows it once the dispute is finally settled, provided evidence of settlement, evidence of discharge and an undertaking against any refund are furnished within six months from the end of the month of settlement, with the intimation in Form No. 45 under Rule 76(15). Form No. 44 for that tax year must already have been filed.
When is an accountant’s certificate required?
Rule 76(16) requires Form No. 44 to be verified by an accountant as defined in section 515(3)(b) where the assessee is a company, and otherwise where the foreign tax paid for the tax year equals or exceeds one lakh rupees. Rule 76(17) applies the same test to Form No. 45.
What replaced Form 67 and Rule 128?
Form No. 44 replaced Form 67 and Rule 76 replaced Rule 128 of the Income-tax Rules, 1962, with effect from 1 April 2026. The rule-making power moved from section 295(2)(ha) of the 1961 Act to section 533(2)(q) of the 2025 Act. Form No. 45 is new as a form, though the six-month condition it serves was in the proviso to Rule 128(4). Rule 128 and Form 67 continue to govern income of previous year 2025-26 and earlier.
How R & D Law Chambers Works on These Matters
Foreign tax credit is treated here as part of the assessment record rather than a return-filing step. What Form No. 44 says about the character of the foreign income, its source and the treaty article under which the tax was levied constrains what can be argued later, in the Indian assessment and in any competent authority process. Credit claims are prepared alongside the positions on characterisation and residence, because the three have to agree.
The second clock is where the practice does work a return preparer does not. A dispute abroad has to be tracked to its settlement date, because Rule 76(6) measures six months from the end of that month and nothing else, and Form No. 45 must be filed with the settlement evidence and the no-refund undertaking inside that period, on top of a Form No. 44 already filed for the year. Where proceedings run in more than one jurisdiction we hold the calendar against the foreign proceedings, not the Indian filing season. The practice is led by a lawyer holding the Advanced Diploma in International Taxation of the Chartered Institute of Taxation.
Related services
- International taxation and cross-border tax planning and litigation: treaty positions, structuring and disputes.
- Mutual Agreement Procedure in India: treaty-based resolution of cross-border tax disputes.
- Advance Pricing Agreements: forward certainty on transfer pricing outcomes.
- Income tax assessments, reassessments and ITAT appeals: representation on the Indian side of the record.
Related reading
- Double Taxation Avoidance Agreements: a guide for global businesses and investors: how treaties allocate taxing rights and what documentation the relief requires.
- What is withholding tax: a guide for foreign businesses receiving payments from India: the inbound mirror of the over-withholding problem in section 5 above.
| This article is provided for general information only. It does not constitute legal or tax advice and does not create a lawyer-client relationship. Specific matters should be referred to qualified advisers. Practice led by Ravish Bhatt, dual-qualified lawyer (India and England & Wales), Bar Council of Gujarat (Enrolment G/504/2008), SRA (non-practising) Registration No. 492 477, ADIT (CIOT, London). |