CBDT extends the time allowed to file prescribed documents to claim foreign tax credit

The Central Board of Direct Taxes (CBDT), recently issued a Notification amending Rule 128 of the Income-tax Rules, 1962, for claiming foreign tax credit (FTC) in India.The Indian Tax Laws (ITL) require a resident taxpayer desirous of claiming FTC to submit the prescribed documents to the tax authority. Hitherto, Rule 128 required such documents to be furnished on or before the due date for filing of the return of income (ROI) in India. This created practical challenges and genuine hardship for many taxpayers, more particularly, where the foreign taxes were paid after the expiry of the due date for filing ROI in India. The amended Rule 128 now extends the time allowed to file the prescribed documents beyond the due date for ROI filing, till the expiry of one year from the end of the relevant tax year (TY) in which the income pertaining to such FTC has been offered or assessed to tax. But this is subject to the condition that the ROI for such TY has been furnished within the time specified for filing the original or belated ROI.

Additionally, consequent to the amendment to the ITL vide Finance Act (FA) 2022 which introduced the facility to the taxpayers to file an updated ROI offering additional income to tax within three years of the end of the TY, the amended Rule 128 also permits filing of updated documents with regard to claim of FTC in respect of such additional income disclosed in the updated ROI.

While the Notification states that the amendment shall be deemed to have come into force from 1 April 2022, the Explanatory Memorandum to the Notification clarifies that the amended Rule 128 is effective from 1 April 2022 so that it applies to all the claims of FTC furnished during financial year (FY) 2022-23. It is also certified that no person is being adversely affected by giving retrospective effect to the amended Rule.