Tax Talk: Already Paid Taxes Abroad? Here’s How You Avoid Paying Twice in India

In today’s world, careers are no longer limited by borders. Many Indian professionals now work with global clients, take international consulting assignments, collaborate remotely with foreign companies, or receive income for technical services from abroad.

While the earning potential becomes exciting, there is one challenge most people don’t think about at first: taxation in multiple countries. You may earn income in another country, that country deducts tax from your payment, and then India taxes the same income again when you file your Income Tax Return (ITR).

This situation is called double taxation, and it can feel unfair — being taxed twice on the same income. Thankfully, India has clear rules to prevent this. These rules fall under Section 90, Section 91, and the concept of Foreign Tax Credit (FTC).

Tax Talk: Already Paid Taxes Abroad? Here’s How You Avoid Paying Twice in India

🌍 Why Double Taxation Happens in the First Place

When you earn income from a foreign country, two things happen:

The foreign country considers it income earned within their territory, so they tax it at source.
India considers you a tax resident, so you must report your global income and pay tax in India as well.

This leads to the same income being taxed twice.

For example:
If you are an Indian resident and receive consultancy fees from the US, the US company may deduct tax before sending you the payment. When you file your tax return in India, you still need to report this foreign income to the Indian tax department.

Without relief, you would end up paying tax twice.
This is where Double Taxation Avoidance Agreements (DTAA) and foreign tax credit rules come into play.

🔐 How India Prevents Double Taxation

India prevents double taxation through two key mechanisms:

1️⃣ Section 90 – When India Has a DTAA with the Other Country

Most major countries such as the US, UK, Canada, Australia, Germany, UAE, Singapore, etc., have a DTAA with India.
Under a DTAA, the two countries agree on:

Which country gets to tax what income
How tax credit should be given
The maximum rate at which tax may be deducted
Special rules for consultancy, technical services, salaries, interest, and dividends

Under Section 90, you can claim tax relief exactly as per the DTAA terms.

2️⃣ Section 91 – When There Is No DTAA

Sometimes India has no tax treaty with the country from which you receive income.
In such cases, Section 91 gives unilateral relief, meaning India alone allows tax credit even without a treaty.

This ensures you still avoid double taxation.

📌 Important Point: Credit Is Not Unlimited

Even though tax relief is available, it is not open-ended.

India allows Foreign Tax Credit (FTC) only up to the tax payable in India on that same foreign income.

This means:

If the foreign country deducts more tax than the Indian tax liability → India will give credit only up to the Indian tax amount.
Excess foreign tax cannot be refunded by India, nor can it be adjusted against other income.

💡 Example to Understand FTC Clearly

Suppose an Indian resident consultant earns $10,000 from Canada.

Canada deducts 25% tax = $2,500
Indian tax on this $10,000 = $1,800

Result:
India allows credit only up to $1,800.
The remaining $700 is not refunded.

This is a common misunderstanding — many people assume India will refund foreign taxes if excess was deducted. But that is not allowed under Indian rules.

🚫 Penalties and Interest Cannot Be Claimed as Credit

Foreign tax authorities sometimes charge:

Late payment interest
Penalties
Fees for late filing

India does not consider these as “tax”, so they cannot be claimed as Foreign Tax Credit.

Only income tax, including cess and surcharge abroad, can be claimed.

🔍 Foreign Tax Must Be Fully and Finally Paid

Foreign Tax Credit is given only when the tax abroad has been actually paid and is not under dispute.

Why is this important?

Because sometimes:

You may file for a foreign tax refund
The foreign tax authority may reassess your tax
The client may revise withholding due to error
You may appeal and get part of the tax back

If any change happens later, you must:

Recompute your Indian tax liability
File a revised Indian return, if needed
Pay any additional tax due in India

FTC is based on final tax, not temporary or disputed deductions.

📝 Form 67 – The Most Critical Step (Often Ignored)

To claim Foreign Tax Credit, you must submit Form 67 online on the Income Tax portal.

This form includes:

Details of foreign income
Taxes paid abroad
Name of the foreign country
Proof of tax payment (withholding certificate, payslip, tax assessment order, etc.)

If you forget to file Form 67, your FTC claim may be rejected, even if tax was actually paid abroad.

When must Form 67 be filed?

Ideally on or before the due date of filing your ITR.
Late filing may lead to disallowance, depending on assessment.

🧾 Reporting Foreign Income in ITR: Schedules FSI and TR

To claim tax relief correctly, two schedules in the Income Tax Return (ITR) are crucial:

✔ Schedule FSI (Foreign Source Income)

Here you enter:

Type of foreign income (consulting, technical services, salary, etc.)
Amount of income earned
Country from where income is received
Tax paid abroad

✔ Schedule TR (Tax Relief)

Once FSI is completed, Schedule TR gets auto-filled.
It calculates the Foreign Tax Credit based on:

DTAA rules OR
Section 91

The details in Form 67 and ITR must match.

Inconsistency is a common reason why FTC claims get questioned or denied during assessment.

🏦 Who Benefits Most from Foreign Tax Credit?

Foreign Tax Credit is especially helpful for:

1. Freelancers/Consultants Working with Overseas Clients

Those receiving payments from:

US
Canada
Europe
Australia
Singapore

Often face withholding taxes abroad.

2. Employees Working Abroad Temporarily

If you receive:

Salary
Bonus
Stock compensation

and tax is deducted abroad, FTC prevents double taxation.

3. Individuals Offering Technical or Professional Services

People working in IT, design, AI consulting, engineering, legal, medical, and finance sectors.

4. Start-up Founders and Remote Workers

Many founders receive:

Advisory fees
Technical collaboration income
Payments for code or design work

These may be taxed abroad.

5. Investors Earning Certain Types of Income

Such as:

Dividends from foreign companies
Capital gains in certain cases (depending on DTAA)

💡 Why You Should Report Global Income Honestly

Some taxpayers believe that if foreign tax is already paid, they don't need to disclose the income in India.
This is incorrect.

As long as you are an Indian tax resident, you must report global income.

If you don’t:

You risk penalties
Your foreign income streams may get flagged
Banks and tax departments exchange information internationally (CRS agreements)

Reporting honestly ensures you also get the rightful credit.

⚠️ Common Mistakes People Make (And How to Avoid Them)

❌ Mistake 1: Assuming foreign income is non-taxable in India

Even if tax is deducted abroad, India still taxes the income — but gives credit.

❌ Mistake 2: Not filing Form 67

Without Form 67, FTC may be denied completely.

❌ Mistake 3: Not keeping tax deduction proofs

Always keep:

Withholding certificate
Payslip
Invoice with deducted tax
Tax assessment by foreign authority

❌ Mistake 4: Assuming India will refund excess foreign tax

India only gives credit up to Indian tax liability.

❌ Mistake 5: Incorrectly converting foreign income to INR

Use the telegraphic transfer buying rate (TTBR) of the State Bank of India (SBI) for conversion.

❌ Mistake 6: Forgetting to revise returns if foreign tax changes later

This can create mismatches during scrutiny.

📘 A Step-by-Step Guide to Claiming Foreign Tax Credit

Here’s a simple flow you can follow every year:

Step 1 — Collect all foreign income and tax documents

Invoices, pay slips, tax withholding statements, and foreign tax receipts.

Step 2 — Convert foreign income into INR

Use the SBI TTBR rate applicable on the last day of the previous financial year.

Step 3 — Fill Schedule FSI in your ITR

Provide income and tax details country-wise.

Step 4 — Verify Schedule TR

This computes the tax credit automatically.

Step 5 — Upload Form 67

Attach documentary evidence.

Step 6 — File your Income Tax Return

Double-check that all foreign income and FTC details are consistent.

📢 A Real-Life Example to Make It Clear

Imagine Asha, an Indian resident software developer working remotely for a UK-based company.

She earns £20,000 during the year.
The UK company deducts tax at 20% = £4,000.
In India, her tax on this income = ₹3,30,000 (after conversion).
She files Form 67 and ITR with Schedule FSI and TR.

Outcome:

India allows credit only up to ₹3,30,000.
She does not pay tax twice.
The remaining UK tax is not refunded by India.

This is exactly how FTC protects Indian taxpayers working globally.

💬 Why Understanding FTC Matters Today

More Indians than ever before are:

Working remotely for global companies
Taking international consulting assignments
Providing technical services across borders
Receiving payments in foreign currencies

The world has become borderless, but taxation has not.
Foreign Tax Credit ensures Indian residents are protected from unfair double taxation.

By following simple rules — Form 67, Schedule FSI & TR, and claiming credit correctly — you can continue earning globally without facing unnecessary tax burden.

🎯 Final Takeaway

If you earn income abroad and tax is deducted there, remember:

✔ You must report the income in India

✔ You can claim tax relief under Section 90 or 91

✔ India gives credit only up to the Indian tax amount

✔ File Form 67 to avoid rejection

✔ Keep all foreign tax documents ready

✔ Always declare global income honestly

Understanding these rules will save you money, prevent mistakes, and keep your taxes compliant.