Sudhakar Sethuraman, Radhika Viswanathan & Vinit Turakhia
In India, taxation of individuals is based on a combination of factors such as residential status, nature of income etc. Those who have stayed in India beyond certain prescribed threshold period would qualify as ordinarily residents and be taxable on their worldwide income. Nothing out of the ordinary here – you might wonder. What if the same income is subject to tax in the overseas jurisdiction as well? A classic case could be of an individual earning interest income from his bank account in Japan and taxed therein. It won’t be wrong to state that tax payments have always been taken with a pinch of salt and to ask a person to pay it twice could be adding to the brine.
Double taxation can be minimised / avoided by claiming credit for the taxes paid overseas by way of deduction or otherwise. Known as FTC in short for foreign tax credit, this claim is allowable only in the year in which the income corresponding to such tax has been offered or assessed to tax in India. Further, the claim has to be made online following the stipulated process, which poses challenges. Here are a few practical difficulties you may face while trying to claim FTC.
One of the most common challenges taxpayers have to deal with is that most of overseas countries typically follow the calendar year as their tax year while India follows the fiscal year concept. This difference in time period gives rise to differences in the income and taxes reported overseas and those in India, thereby impacting the tax liability here.
The issue is even bigger now, given that effective tax year 2017-18 onwards, the India tax return can be revised only until the end of the relevant assessment year, i.e. the window for revision is restricted to 12 months from the end of the year as against 24 months previously. If you are not able to file your overseas tax return covering the India fiscal year 2017-18 (01 April 2017 to 31 March 2018) by 31st March 2019, it may be very difficult to revise your India tax return for any changes to the income reported or to claim FTC.
Another issue while claiming FTC is with respect to the documents required to be submitted. As per the procedure laid down,
a) Form 67 – Statement with details of FTC (including taxes paid overseas and income earned outside India); and b) Proof of taxes paid (Either by way of certificate from tax authority or certificate from deductor or certificate by the assessee attaching the proof of taxes paid) have to be furnished electronically prior to filing the tax return to claim FTC.
As per the FTC rules, Form 67 filed electronically needs to be verified online in the user’s account in the tax portal, to complete the process. For this, a tax payer needs to have a digital signature certificate (DSC), Aadhaar number or a pre-validated bank account.
Foreign nationals who have repatriated after completing their stint in India and Indian nationals who have been outside the country for a long time would find this a difficult proposition.
There are no two views on the fact that a tax regime that understands the needs and aspirations of the common man, is easy to comprehend and abide by, has an inclination to listen, adopt and develop, would help widen the tax base and increase revenue inflows. Considering the challenges cited above in the FTC claim process, it would be general expectation that Budget 2019 provides the following:
1. Reconsider the timelines for filing revised tax returns in India to facilitate tax payers to revise their India tax returns after filing the overseas returns or provide an option to change the claims (if different in the final overseas return);
2. Notify additional documentation that could be accepted as proof of tax payment;
3. To avoid genuine difficulties in verifying Form 67, additional methods of validation could be notified; alternatively an exception could be made and validation done away with in case of individuals who are not in India.
(The authors are from Deloitte Haskins & Sells LLP)