Foreign Tax Credit and TDS Disallowance Due to Delay in Filing Form 67: Legal Perspectives and a Real-Life Victory
Introduction
In today’s global economy, it’s not uncommon for Indian taxpayers especially professionals, consultants, NRIs, and multinational employees to earn income from foreign sources. While this brings the benefit of cross-border income, it also presents a key challenge: double taxation.
To address this, Indian tax law provides relief under Section 90 and 91 of the Income Tax Act, 1961, allowing taxpayers to claim Foreign Tax Credit (FTC) on taxes paid in a foreign country, subject to India’s Double Taxation Avoidance Agreements (DTAAs).
However, to claim FTC, the law prescribes the filing of Form 67, which is often misunderstood as a strict precondition rather than a procedural requirement. This has led to genuine taxpayers facing disallowance of FTC and even domestic TDS credits simply due to procedural delays especially late filing of Form 67.
This blog will explore the legal framework, consequences of non-compliance, judicial views, and share a real-life success story where we successfully contested such a disallowance before the Income Tax Appellate Tribunal (ITAT), Pune.
What is Foreign Tax Credit (FTC)?
Foreign Tax Credit refers to the credit of taxes paid in a foreign country against tax payable in India on the same income. It is governed by:
- Section 90/90A – Applicable when India has a DTAA with the foreign country.
- Section 91 – Applies when there is no DTAA.
Rule 128 – Lays down conditions, documentation, and timelines for FTC claims.
Importance of Form 67
As per Rule 128(8) of the Income Tax Rules, 1962, a taxpayer claiming FTC must file Form 67 on or before the due date of furnishing the return under Section 139(1).
Form 67 includes details such as:
- Nature and amount of foreign income
- Foreign tax paid
- Country of origin
- Tax certificate or proof of tax paid
Although Form 67 is a procedural form, its non-filing or delayed filing has frequently led to denial of FTC and even related TDS claims, raising a critical question:
Can a delay in Form 67 filing nullify a taxpayer’s right to FTC or TDS credit, even when taxes have actually been paid?
Consequences of Delay in Filing Form 67
If Form 67 is not filed on time:
- The Assessing Officer (AO) may disallow the FTC entirely.
- Even TDS claims may be questioned if the relevant income is foreign-sourced.
- Taxpayers may face additional tax demand, interest, and penalties.
- Refunds may be denied or significantly reduced.
Our Success Story: A Successful Outcome Before ITAT Pune
Background
Our client, an Indian taxpayer, had earned foreign income and also suffered TDS in India during the relevant assessment year. While they claimed FTC and TDS credits in the income tax return, they had filed Form 67 after the due date under Section 139(1).
During assessment, the Income Tax Department disallowed both FTC and TDS claims citing procedural default delayed Form 67 filing.
Legal Representation
The client approached our firm, and Adv. Sachin P. Kumar led the legal representation before the Income Tax Appellate Tribunal (ITAT), Pune. The arguments presented were as follows:
1. Substantive Right Cannot Be Denied for Procedural Delay
We argued that FTC is a substantive right granted by Section 90/91 and cannot be denied merely for a delay in filing Form 67, which is procedural in nature. The actual foreign taxes were paid, and sufficient documentary proof was furnished.
2. Reliance on Judicial Precedents
We cited the following landmark judgments:
- Brinda Rama Krishna v. ITO (Bangalore ITAT, 2022) – Held that delayed Form 67 filing cannot defeat the FTC claim.
- Wipro Ltd. v. DCIT (Bangalore ITAT, 2023) – Affirmed that Form 67 is not mandatory for claiming FTC if substantive conditions are met.
- Ravindranathan Nair v. ACIT (Kerala HC, 2022) – Emphasized that procedural rules should not override substantive rights.
3. TDS Credit Also Should Not Be Denied
We highlighted that TDS, reflected in Form 26AS, is an independent claim under Section 199 and should not be denied based on issues relating to Form 67.
Tribunal Ruling
The Hon’ble ITAT Pune Bench accepted our contentions and ruled in favor of our client:
- Held that FTC and TDS claims cannot be denied solely due to delay in Form 67 filing.
- Directed the AO to verify the foreign taxes paid and allow credit appropriately.
- Acknowledged that no malafide intention was present and that the delay was merely procedural.
Outcome
ur client received significant tax relief, and the matter established a strong precedent for future cases involving similar procedural defaults.
Key Takeaways from This Case
The government has ramped up technological surveillance through:
FTC is a Right, Not a Concession
FTC arises from tax treaties and domestic law. Once tax is paid abroad and income is declared, the right to credit cannot be defeated on procedural grounds alone.
Form 67 is Important but Not Absolute
While timely filing is ideal, belated submission does not automatically lead to denial, especially when:
- Income is disclosed,
- Tax is paid,
- All documentary evidence is available.
TDS Claims are Independent
TDS credits are governed by Section 199, and delay in Form 67 cannot be a ground to deny credits reflected in Form 26AS.
Courts and Tribunals Are Supporting Taxpayers
The judiciary is consistently holding that procedural lapses should not override genuine claims, especially when revenue loss or fraud is not involved.
Practical Guidance for Taxpayers
If you’re dealing with foreign income or cross-border tax payments:
1. File Form 67 on Time
- Try to file Form 67 before the due date under Section 139(1).
- If delayed, file it anyway—belated submission is better than none.
2. Maintain Documentation
- Keep foreign tax certificates, payslips, bank statements, and correspondence.
- Retain Indian Form 26AS for domestic TDS.
3. Disclose Everything in ITR
- Properly report foreign income and tax paid abroad.
4. Don’t Panic Over Delay
- If you missed Form 67, you still have options via rectification, appeal, or legal representation.
Conclusion
This case serves as a compelling example of how procedural delays should not rob taxpayers of their rightful tax reliefs. FTC and TDS are mechanisms to avoid unjust double taxation, and denying them for minor delays defeats the very purpose of equitable taxation.
Our successful representation before the ITAT Pune not only brought relief to our client but also contributed to the growing jurisprudence in favor of substance over form in Indian tax law.
If you’re facing a similar issue, remember:
The law supports fairness and justice with proper legal guidance, even complex cases can result in favorable outcomes.
Need Help with FTC, Form 67, or Tax Litigation?
Our expert tax litigation team can guide you through assessment proceedings, appeals, and compliance with cross-border tax requirements. . For any information drop us a mail on spkumarassociates@gmail.com or reach our website www.sachinpkumar.com