Foreign Exchange rate Conversion for getting credit of Federal Tax paid in Foreign currency- Foreign Tax Credit u/s.90

[PRIYAM KHAMBHATA]

Dear Sir

My client residential status is Not Ordinary Resident for the FY 2025-26 and he has earned foreign salary income and also tax deducted as federal tax on such foreign income. Now, such foreign Income are offered for taxation in India as service rendered in India and receipts credit in US Bank Account.

As per Income tax Rule 115, the rate of exchange for the calculation of the value in rupees of Salary income received in foreign currency shall be the telegraphic transfer buying rate of such currency as on the specified date means - in respect of income chargeable under the head 'Salaries', the last day of the month immediately preceding the month in which the salary is paid. My question is that we will conversion of Salary Income in foreign currency as per above rule, but at what rate of exchange would be applied for conversion of federal tax deducted in foreign currency.

Please guide me.

AI Summary

Foreign tax credit under section 90 raises the exchange-rate question for converting foreign tax deducted in currency. Foreign salary income received in foreign currency is to be converted into rupees under Rule 115 by applying the telegraphic transfer buying rate on the specified date for salary income. The issue raised concerns the corresponding exchange rate to be applied for converting foreign tax deducted in foreign currency into Indian rupees for purposes of claiming foreign tax credit under section 90, where the taxpayer is a non-ordinary resident and the foreign income is offered to tax in India as service income rendered in India.