Relief u/s. 90 can claim in Updated Return u/s. 139(8A) - Original Return u/s. 139(1) has not filed

[PRIYAM KHAMBHATA]

Respected Sir

My client is employee of US based Company since long. He is doing Job in India (Work from Home) and earned Salary in USD, which is credited in US Bank Account. It is to be noted that Federal Tax is also deducted on his Salary in USD. It is important to be noted that His Residential Status is Ordinary Resident, however He has not filed Indian Income tax Return for AY 2022-23 to AY 2025-26..

My Query is Whether, my client is to claim Relief u/s. 90 in respect of Foreign Tax Credit, while offering US Salary in Updated Income tax Return u/s. 139(8A) of the Income tax Act for AYs 2022-23 to 2025-26. Foreign Tax Credit statement in Form 67 for claiming Foreign Tax Credit is to be filed with updated Income tax Return filed u/s. 139(8A). ie. after 139(1) or 139(4). Is there any violation for delay filing Form 67

Please Guide me.

 

[YAGAY andSUN]

The assessee, being an Ordinarily Resident in India, is liable to tax in India on his global income, including salary earned in USD and credited to a US bank account, in terms of the Income Tax Act, 1961. Accordingly, the said salary income is taxable in India for AYs 2022-23 to 2025-26, notwithstanding that Federal tax has been withheld in the United States.

In order to mitigate double taxation, the assessee is eligible to claim Foreign Tax Credit (FTC) under Section 90 of the Act read with the India-USA Double Taxation Avoidance Agreement, subject to fulfillment of prescribed conditions.

Filing of Updated Return (Section 139(8A))

The assessee may furnish updated returns for the relevant assessment years offering such foreign salary income to tax. There is no bar under the Act prohibiting the claim of FTC in a return filed under Section 139(8A), provided the claim is otherwise admissible and duly substantiated.

Requirement of Form 67

As per Rule 128 of the Income-tax Rules, filing of Form 67 is a procedural requirement for claiming FTC. The Rule prescribes that such form should be furnished on or before the due date specified under Section 139(1).

Delay in Filing Form 67 - Legal Position

Judicial precedents have consistently held that:

• Filing of Form 67 is directory and not mandatory in nature;
• Substantive relief of FTC cannot be denied merely on account of procedural delay, if taxes have been actually paid in the foreign jurisdiction and are duly evidenced.

Accordingly, even where Form 67 is filed belatedly along with or after the updated return under Section 139(8A), the FTC claim should not be denied solely on the ground of delay, particularly where:

• Foreign income is duly offered to tax in India;
• Proof of tax deduction/payment in the US is available; and
• There is no dispute regarding the genuineness of the claim.

The assessee is entitled to claim relief under Section 90 in respect of US Federal taxes while filing updated returns under Section 139(8A). Although Form 67 is required to be filed, delay in its filing is a procedural lapse and, in light of prevailing jurisprudence, should not invalidate the FTC claim if substantiated on merits.

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AI Summary

Foreign Tax Credit may be claimed in an updated return, and delayed Form 67 filing is treated as a procedural lapse. An ordinarily resident assessee is taxable in India on global income, including salary earned in USD and credited to a US bank account, and may claim Foreign Tax Credit under section 90 while filing an updated return under section 139(8A). Form 67 is treated as a procedural requirement for FTC, and delay in filing it is viewed as a procedural lapse that should not defeat the claim where foreign tax payment is evidenced and the income is duly offered to tax in India.