Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
When a credit arises
A foreign tax credit only matters when the same income is taxed in both countries. As a pure NRI, India taxes only your Indian income, so the credit usually flows the other way — your home country credits the Indian tax. Once you become a resident taxed on worldwide income, India gives you the credit for foreign tax.
How to claim it
You claim the credit under the relevant DTAA (or Section 91 where there is no treaty), and you must file Form 67 with documentary proof of the foreign tax. The credit is limited to the lower of the foreign tax and the Indian tax on that income.
A worked example
Example: after returning to India you become an ordinary resident and earn US dividends taxed at 25% there. India also taxes them, but you claim a credit (capped at the Indian rate) via Form 67, so you don’t pay twice. During your earlier RNOR years, that foreign income generally wasn’t taxed in India at all — which is exactly why the RNOR window is so valuable for timing the sale of foreign assets. Where there is no treaty with the country concerned, Section 91 still gives a unilateral credit, so you are rarely left fully double-taxed; but the relief is mechanical and needs Form 67 and proof. Our returning NRI service can plan it.