DTAA and the Foreign Tax Credit
How treaty relief and the Foreign Tax Credit prevent double taxation, and the rules that govern them
Where the same income is taxed both in another country and in India, two mechanisms prevent double taxation. A Double Taxation Avoidance Agreement (DTAA) under Sections 90/90A applies the treaty between India and the other country, and you may use whichever of the treaty or the Act is more beneficial; where there is no treaty, Section 91 gives unilateral relief. The Foreign Tax Credit (Rule 128) then credits the foreign tax against your Indian tax on that income, capped at the lower of the two, claimed on Form 67, which since 2022 can be filed up to the end of the assessment year (even with a belated or updated return). A treaty MFN lower rate is not automatic, the Supreme Court held in Nestle that it needs a separate notification.
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Treaty relief and the more-beneficial rule
India has tax treaties (DTAAs) with around 90 countries. Under Sections 90 and 90A you apply the relevant treaty, and under Section 90(2) you may use the treaty or the Income-tax Act, whichever is more beneficial to you. Where no treaty exists, Section 91 gives unilateral credit for foreign tax. Treaties also resolve dual residence through the Article 4 tie-breaker (permanent home, then centre of vital interests, then habitual abode, then nationality, then mutual agreement), and set lower withholding rates for royalties and fees for technical services (commonly 10 to 15%). To claim a treaty rate as a non-resident you generally need a Tax Residency Certificate (TRC) and, where it lacks particulars, Form 10F.
The Foreign Tax Credit (Rule 128, Form 67)
The Foreign Tax Credit relieves the same income being taxed twice: it credits the foreign tax paid against the Indian tax on that doubly-taxed income, computed per source and per country, and capped at the lower of the foreign tax paid or the Indian tax payable on that income, the excess is not refundable. You claim it by filing Form 67 with proof of the foreign income and tax. Crucially, since Notification 100/2022, Form 67 can be filed up to the end of the relevant assessment year (and with a belated or updated return), not just by the original return due date, and the tribunals treat the requirement as directory, so a late Form 67 should not automatically deny a genuine credit.
tipMissed the old Form 67 deadline? Since 2022 you can file it right up to the end of the assessment year, even with a belated or updated return, and still claim your foreign tax credit. Do not let a procedural slip cost you the credit.
MFN, LOB, PPT and GAAR: relief is not automatic
Treaty benefits are increasingly tested against anti-abuse rules. A most-favoured-nation (MFN) lower rate in some treaties (Netherlands, France, Switzerland) is not self-executing: the Supreme Court held in Nestle/Concentrix (2023) that it requires a separate notification under Section 90, reversing a taxpayer-friendly High Court view. Limitation-of-benefits (LOB) clauses (notably in the Mauritius and Singapore treaties) and the principal-purpose test (PPT) under the BEPS multilateral instrument can deny a benefit obtained as a principal purpose, and the domestic GAAR (Sections 95-102) can override even a facially valid treaty claim for impermissible avoidance. So the modern question is not just whether a treaty article covers you, but whether the claim survives LOB, PPT and GAAR.
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Calculators
Source / notes
- Income-tax Act 1961 ss.90/90A (treaty) + s.90(2) (more-beneficial) + s.91 (unilateral) (re-enacted in the Income-tax Act 2025)
- Rule 128 + Form 67 (Foreign Tax Credit; Notification 100/2022 deadline relaxation) + TRC/Form 10F
- Income-tax Act 1961 ss.95-102 (GAAR); Nestle SA v CIT (SC 2023) on MFN
Frequently asked questions
How do I avoid being taxed twice on foreign income?+
Through a tax treaty (DTAA) and the Foreign Tax Credit. The DTAA under Sections 90/90A applies the India-other-country treaty, and you can use whichever of the treaty or the Act is more beneficial. The Foreign Tax Credit then credits the foreign tax against the Indian tax on that income (capped at the lower of the two), claimed on Form 67. Where there is no treaty, Section 91 gives unilateral relief.
When must I file Form 67 for the Foreign Tax Credit?+
Up to the end of the relevant assessment year, since Notification 100/2022 relaxed the rule, including with a belated or updated return. The old rule tied it to the original return due date and denied credit for a procedural slip. The tribunals also treat Form 67 as directory rather than mandatory, so a late filing should not automatically deny a genuine foreign tax credit.
Is a treaty MFN lower rate automatic?+
No. The Supreme Court held in Nestle (2023) that a most-favoured-nation lower rate in treaties such as the Netherlands, France and Switzerland is not self-executing, it requires a separate notification under Section 90. So you cannot simply apply the MFN rate; India only honours it once formally notified. This reversed an earlier taxpayer-friendly High Court position.
How much foreign tax credit do I actually get?+
The credit is per source and per country, and capped at the lower of the foreign tax you paid or the Indian tax payable on that same income, the excess is not refundable. So if UK tax on some income was Rs 1.2 lakh and the Indian tax on it is Rs 1 lakh, your credit is Rs 1 lakh, and the Rs 20,000 difference is not creditable. Foreign tax is converted at the prescribed exchange rate.
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