Rule 76 — Foreign tax credit. Made under s.159, s.160, s.206, s.263, s.515 of the Income-tax Act, 2025.
Rule 76 gives effect to Section 159, Section 160, Section 206, Section 263 and Section 515 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
Sub-rule (1) allows a resident assessee credit for foreign tax paid in a country or specified territory outside India, by deduction or otherwise, in the tax year in which the corresponding income is offered to tax or assessed to tax in India, in the manner and to the extent specified in the rule. Sub-rule (2) spreads the credit where the income is offered to tax in more than one tax year, in the same proportion in which the income is offered or assessed.
Sub-rule (3) defines the foreign tax: where India has an agreement for relief or avoidance of double taxation in terms of section 159, the tax covered under that agreement; in any other case, the tax payable under the law in force in that country or territory in the nature of income-tax referred to in section 160(3)(a).
Sub-rule (4) confines the credit to tax, surcharge and cess payable under the Act and denies it against any sum payable by way of interest, fee or penalty. Sub-rule (5) denies credit for foreign tax that is disputed in any manner by the assessee, subject to sub-rule (6); sub-rule (6) restores it for the year in which the income was offered or assessed if, within six months from the end of the month in which the dispute is finally settled, the assessee furnishes evidence of settlement, evidence that the liability has been discharged, and an undertaking that no refund of that amount has been or will be claimed directly or indirectly.
Sub-rule (7) computes the credit as the aggregate of amounts worked out separately for each source of income arising from a particular country or territory. The credit is the lower of the tax payable under the Act on that income and the foreign tax paid on it, and where the foreign tax paid exceeds the amount of tax payable in accordance with the agreement for relief or avoidance of double taxation, the excess is ignored; the currency of payment is converted 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.
Sub-rule (8) allows the credit against tax payable under section 206 in the same manner as against tax payable under the normal provisions. Sub-rule (9) provides that where the credit available against tax under section 206 exceeds that available against the normal provisions, the excess is ignored while computing the credit under section 206(1)(m) to (p) and section 206(2)(e) to (h) in respect of taxes paid under section 206(1) and (2).
Sub-rule (10) makes the credit conditional on furnishing a statement of the foreign income and foreign tax in Form No. 44, verified as specified, and a certificate or statement specifying the nature of the income and the tax deducted or paid, from the foreign tax authority, or from the person responsible for deduction, or signed by the assessee. Sub-rule (11) makes that certificate or statement valid only if accompanied by an acknowledgement of online payment, bank counter foil or challan where the assessee paid, or proof of deduction where tax was deducted.
Sub-rule (12) requires Form No. 44 and the certificate or statement to be furnished within twelve months from the end of the relevant tax year in which the income was offered or assessed, with the return for that year furnished within the time specified under section 263(1) or (4), subject to sub-rule (13); sub-rule (13) requires them, where the return is furnished under section 263(6)(a), to be furnished on or before the date of that return to the extent they relate to income included in the updated return. Sub-rule (14) requires Form No. 44 also where a carry backward of loss, a revision of return or a similar statement or any other reason results in a refund of foreign tax for which credit has been claimed. Sub-rule (15) requires an intimation in Form No. 45 with evidence of settlement of the dispute, including evidence of payment of tax, for the purposes of sub-rule (6).
Sub-rule (16) requires Form No. 44 to be verified by an accountant defined in section 515(3)(b) where the assessee is a company, and in all other cases where the foreign tax paid outside India for a tax year equals or exceeds Rs. 1,00,000. Sub-rule (17) requires Form No. 45 to be verified by such an accountant where Form No. 44 for that year required such verification. Sub-rule (18) takes "telegraphic transfer buying rate" from rule 207.
The Act allows relief for foreign tax but does not say how much credit, against what, in which year, or on what evidence. The rule settles all four: it matches the credit to the year the income is taxed in India rather than the year the foreign tax was paid, caps it at the lower of the Indian tax on that income and the foreign tax, ties the conversion to a fixed rate on a fixed date, and makes the whole thing conditional on documentary proof from the foreign side. Sub-rules (5) and (6) exist because a disputed foreign tax is not yet a liability discharged, and credit for it has to wait until it is.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Amount of credit for a source of income | The lower of the tax payable under the Act on such income and the foreign tax paid on such income | Computed separately for each source of income arising from a particular country or specified territory; any excess of foreign tax over the tax payable in accordance with the double taxation agreement is ignored | Sub-rule (7)(a) |
| Rate of conversion of foreign tax into rupees | The telegraphic transfer buying rate on the last day of the month immediately preceding the month in which the tax was paid or deducted | "Telegraphic transfer buying rate" has the meaning assigned in rule 207 | Sub-rule (7)(b) with sub-rule (18) |
| Time to claim credit for a disputed foreign tax after settlement | Six months from the end of the month in which the dispute is finally settled | Evidence of settlement, evidence that the liability has been discharged, and an undertaking that no refund has been or will be claimed must all be furnished within that period | Sub-rule (6) |
| Time to furnish Form No. 44 and the certificate or statement | Twelve months from the end of the relevant tax year in which the income is offered to tax or assessed to tax in India | The return for that tax year must have been furnished within the time specified under section 263(1) or (4); subject to sub-rule (13) | Sub-rule (12) |
| Time to furnish them where an updated return is filed | On or before the date on which the return is furnished | Return furnished under section 263(6)(a), to the extent the documents relate to the income included in the updated return | Sub-rule (13) |
| Threshold above which a non-company must have Form No. 44 verified by an accountant | Rs. 1,00,000 | Foreign tax paid outside India for the tax year equals or exceeds this amount; a company needs accountant verification regardless of amount | Sub-rule (16) |
Credit follows the Indian year of taxation, not the year of foreign payment, and where one stream of income is taxed here across several years the credit is split in the same proportion under sub-rule (2). The cap in sub-rule (7)(a) works source by source and country by country, so excess foreign tax on one source cannot be set against Indian tax on another, and anything above what the double taxation agreement permits is ignored outright. Nothing is creditable against interest, fee or penalty under sub-rule (4). A disputed foreign tax gives no credit until the dispute is settled, and then only if the six-month window in sub-rule (6) is met with all three items — evidence of settlement, evidence of discharge and the undertaking about refunds. Form No. 44 is not only a claim document: sub-rule (14) requires it again whenever a carry backward of loss, a revised return or anything else produces a refund of foreign tax already credited.
A resident company earns Rs. 50,00,000 of income from a country with which India has an agreement under section 159 and pays foreign tax of Rs. 12,00,000 there, of which Rs. 10,00,000 is the amount payable in accordance with the agreement. Indian tax on that income works out to Rs. 11,00,000. The Rs. 2,00,000 above the agreement figure is ignored under sub-rule (7)(a), and the credit is the lower of Rs. 11,00,000 and Rs. 10,00,000, that is Rs. 10,00,000, converted at the telegraphic transfer buying rate on the last day of the month before the month of payment. Being a company, it must have Form No. 44 verified by an accountant under sub-rule (16), whatever the amount involved.
In Form No. 44 filed alongside the return whenever foreign tax credit is claimed, in Form No. 45 when a foreign tax dispute is settled, and in any assessment where the credit is examined against the foreign tax authority's certificate and the proof of payment or deduction.
The credit under sub-rule (1) shall be available against the amount of tax, surcharge and cess payable under the Act, but not in respect of any sum payable by way of interest, fee or penalty.
the credit shall be the lower of the tax payable under the Act on such income and the foreign tax paid on such income
No credit under sub-rule (1) shall be available in respect of any amount of foreign tax or part thereof, which is disputed in any manner by the assessee