CBDT proposes to simplify foreign tax credit rules

CBDT has put out a framework to provide clarity to Indian firms with foreign income and for granting relief to income tax paid outside India.

CBDT has put out a framework to provide clarity to Indian firms with foreign income and for granting relief to income tax paid outside India. 
 
Foreign tax credit rules apply when tax is paid in a foreign country where the income is also subject to tax in India. Tax payers can take credit or claim for taxes paid outside India. There was an absence of Foreign Tax Credit rules and for tax payers and tax authorities to agree on credit claims. 
 
The draft rules observe that tax credit will be available to entities paying taxes in any country, including those with which India has Double Taxation Avoidance Agreement. The rules say that credit for foreign tax shall be available against amount of tax, surcharge and cess payable under the Act, but not for interest, fee or penalty. The CBDT has invited comments from stakeholders. 
 
"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," the draft rules say. 
 
Tax payers will have to furnish certain documents in absence of which tax credit will not be allowed, and also certificates from tax authorities outside India specifying the nature of income and amount of tax deducted or paid by the taxpayer, and a declaration that tax is not under dispute. 
 
Source: Agencies

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