A communication issued by the Central Board of Direct Taxes, as F. No. 142/24/2015-TPL, dated 18 April 2016. Issued under section 295(2)(ha).
A draft rule circulated by the Board for public comment, framed under clause (ha) of sub-section (2) of section 295 of the Income-tax Act, 1961. Sections 90, 90A and 91 have always allowed relief for foreign tax, but the Act laid down no method, and the credit was worked out case by case with no settled answer on timing, on the currency, or on what happens when the foreign tax is disputed. The draft supplies a single code for the computation of that credit.
This one does not fall neatly into the Board's usual classes — it is a letter, a memorandum, a consultation paper or something else the department has published in this collection. What it is, and what weight it carries, is set out below.
The draft provides that a resident assessee is to be allowed credit for foreign tax paid in a country or specified territory outside India, by way of deduction or otherwise, in the year in which the income corresponding to that tax has been offered to tax or assessed to tax in India, in the manner and to the extent the rule specifies. Foreign tax is defined as tax covered under an agreement under section 90 or section 90A, and in other cases as tax payable under section 91. The credit is made available against tax, surcharge and cess payable under the Act, but expressly not against any sum payable by way of interest, fee or penalty. The claim is conditioned on three documents: a certificate from the foreign tax authority, proof of payment of the foreign tax, and a declaration that the amount of tax is not under dispute.
Indian residents with foreign income had no rule to work from, and the department had no consistent basis on which to allow or refuse a claim. The two hardest questions were timing, because the year of foreign taxation and the year of Indian taxation rarely coincide, and disputed foreign tax, where a credit might be given for an amount later refunded abroad. The Board wrote a rule that ties the credit to the year the income is offered or assessed in India and shuts out disputed tax, and circulated it so the difficulties could be raised before notification.
Nothing in a draft can be applied to an assessee, and the rule as notified differs from it. The point to hold on to about the Board's own instruments is separate: an order, instruction or circular commands the department's officers and stops there. An assessee may resist one that goes against him, and the Tribunal and the High Courts owe it no deference.
Circulated on 18 April 2016 for comment. The document as read does not print the date from which the proposed rule would apply.
Use rule 128 as notified, not this draft; the treatment of disputed foreign tax and the documentation were both altered. Two limits in the draft survived and still catch people out. Credit is not available against interest, fee or penalty, only against tax, surcharge and cess. And the credit is anchored to the year in which the income is offered or assessed in India, so a mismatch between the foreign and the Indian tax years does not by itself move the year of credit.
An assessee being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India
— the Central Board of Direct Taxes, communication F. No. 142/24/2015-TPL, 18 April 2016. Read it in the department’s own PDF.
| Under the Income-tax Act, 1961 | Now, in the Income-tax Act, 2025 |
|---|---|
| section 90 | section 159 |
| section 90A | section 159 |
| section 91 | section 160 |
| section 295 | section 533 |
I hold a Mauritius TRC. Can the department still deny me treaty relief on the capital gains?
We outsource back-office work to our Indian subsidiary. Does that give us a permanent establishment in India?
My protocol has an MFN clause and I applied the lower rate India later agreed with an OECD member. Was I entitled to?
I am a foreign company on a turnkey contract. I fabricated the platform abroad and only installed it in India. Can the Department tax the offshore fabrication profit because the contract was one indivisible whole?
I am resident in India but my rubber estate and my business are in Malaysia. The treaty says that income may be taxed there. Can India tax it as well?
Our Indian agents pay the foreign principal a pro-rata share of the cost of its global booking and communication system — is that fees for technical services taxable in India?
What here is the Board’s and what is ours. The document is the Central Board of Direct Taxes’ own. Its number, its date and the words quoted above are reproduced from the Board’s own PDF, which is here. Everything else on this page is ours: the plain-English account of what the document is and what it does, the reading of which provision it turns on, the note on what to watch, and the choice of cases. Where our account and the document part, the document governs.
An order of the Board binds the department, not you and not a court. The Board writes to its own officers. An assessee may hold the department to an order or an instruction that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves. This is the most common mistake made with this material, and it is worth making twice: a direction of the Board is not a section of the Act.
We did not read all of it. The department’s file returned only part of this document to us, so what is written above is written from the part we could read. Open the PDF before you rely on it.
What we could not settle. The fetch returned sub-rules (1), (2), (3) and (8) but not sub-rules (4) to (7), which deal with the manner of computation, the exchange rate and the treatment of tax disputed abroad. No deadline or email address for comments was legible.