The foreign tax credit is a type of mechanism that allows the residents of India to reduce their tax liability in India if they have already paid taxes on their foreign income abroad. The main purpose of the foreign tax credits is to protect the taxpayers from double taxation on the same income.
If the taxpayers want to know how to claim a foreign tax credit, then they have to correctly mention their foreign income and foreign taxes paid on it in their Income Tax Return in India. They have to fill out a foreign tax credit form and follow the guidelines given by the Indian tax authorities.
A taxpayer who is a resident of India has to pay taxes on the income earned in a foreign country. It means he/she has to pay taxes in both countries. The foreign tax credit system allows taxpayers to get a deduction on the tax they have paid in a foreign country.
The taxpayer has to fill out the Form 67 to claim this deduction while filing the ITR before the due date. The Form 67 is used to determine the foreign income, and it also provides an estimate of the total taxation on the foreign income.
If you are a resident of India and have a foreign income, then here are the steps to claim a foreign tax credit: