To provide relief to corporates having income abroad, the tax department on Monday proposed simplified ‘Foreign Tax Credit’ rules allowing companies to claim credit for taxes paid overseas.
The Central Board of Direct Taxes (CBDT) in its draft FTC rules said tax credit will be available to entities paying taxes in any country, including those with which India has Double Taxation Avoidance Agreement (DTAA).
“The credit for foreign tax 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,” said the draft rules on which the CBDT has invited comments from stakeholders by May 2.
It further said no credit shall be available in respect of any amount of foreign tax which is disputed in any manner by the assessee.
The tax credit, CBDT said, will be the “aggregate of the amounts of credit computed separately for each source of income arising from a particular country or specified territory”.
The tax credit shall also be available against minimum alternate tax (MAT) liability. “This will nip in the bud an issue that could have led to litigation,” said Rakesh Nangia, Managing Partner, Nangia & Co.
The foreign tax credit, the draft rule said, shall be determined by conversion of the currency of payment of foreign tax at the telegraphic transfer buying rate on the date on which such tax has been paid or deducted.