Shah Rukh Khan wins tax case: How foreign income is taxed in India, understanding Form 67

Bollywood superstar Shah Rukh Khan secured a significant victory as the Income Tax Appellate Tribunal (ITAT) ruled in his favor, setting aside reassessment proceedings for the 2011-12 financial year. Tax experts say the ruling reinforces protections for Indian taxpayers with overseas earnings, affirming that tax authorities cannot initiate reassessments arbitrarily without valid grounds.   

Understanding foreign tax credit   

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A foreign tax credit (FTC) allows taxpayers to offset income tax paid in another country against their Indian tax liability. As per tax treaties, individuals must submit Form 67 with their income tax return (ITR) by the due date to claim this benefit.   

Income Tax Rule 128   

This rule governs the FTC mechanism, ensuring that Indian residents can claim a tax credit for foreign taxes paid. The key provisions include:   

• The credit applies in the year the foreign income is taxed in India.   
• If the foreign tax is spread across multiple years, the credit is proportionally adjusted.   
• The credit cannot be used against penalties or interest but can be claimed once a foreign tax dispute is resolved.   
• FTC is calculated separately for each income source and limited to the lesser of Indian tax payable or foreign tax paid.   

To claim FTC, taxpayers must submit supporting documents, including income statements and proof of foreign tax payments, before the end of the relevant assessment year.   

Tax Residency Certificate (TRC) & Residential Status   

To claim tax treaty benefits, non-residents must obtain a Tax Residency Certificate (TRC) from their home country. Additionally, an individual’s residential status in India determines how their global income is taxed.

A person is classified as a resident Indian if they meet either of these conditions:   

• Stayed in India for 182 days or more in a financial year.   
• Stayed in India for 60 days in the last financial year and 365 days or more in the preceding four years.   

A Resident and Ordinarily Resident (ROR) is taxed on global income if they meet additional conditions related to income receipt or accrual in India.   

How to file Form 67 for foreign tax credit   

The Central Board of Direct Taxes (CBDT) has outlined the procedure for filing Form 67, which is mandatory for claiming FTC. It must be filed online before submitting the ITR. A Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is required.   

The form consists of four sections:   

• Part A: Basic details, income receipts, and tax credit claims.   
• Part B: Details of refunds or disputed foreign tax.   
• Verification: Self-declaration under Rule 128.   
• Attachments: Proof of foreign tax payment or deduction.   

Steps to file Form 67 online   

1. Log in to the e-Filing portal.   
2. Go to e-File > Income Tax Forms > File Income Tax Forms.   
3. Select Form 67 and choose the relevant Assessment Year.   
4. Fill in the details and click Preview.   
5. Verify the details and proceed to e-Verify using OTP, DSC, or net banking.   
6. Upon successful verification, a transaction ID and acknowledgment number are generated.   

Documents required for FTC claims   

To ensure a smooth claim process, taxpayers should maintain:   

• Form 67 with proof of foreign tax payments.   
• Tax Deducted at Source (TDS) certificates and ITR copies.   
• Pay slips and income statements.   
• TRC from the source country to validate DTAA applicability.   

With the ITAT ruling in favor of Shah Rukh Khan, the case highlights the importance of proper tax filings and strengthens legal safeguards for Indians earning abroad.