Income Tax--Foreign Tax Credit

Tax Paid Outside India and Its Eligibility for Foreign Tax Credit or as Expenditure

V.K. Subramani

With businesses expanding beyond geographical barriers and increase in purchasing power across the countries have made international transactions a regular feature which were occasional transactions. Foreign companies establishing subsidiaries in India or accessing Indian markets through electronic platform and sourcing supply from local suppliers has become a routine matter.

A company or an individual who is liable to pay tax in the State of residence may also be liable to tax in the source State. When such person pays tax in the source State subsequently when he admits his global income in the State of residence, the income so referred may be liable to tax based on the DTAA between the States. In order to provide some relief to such taxpayers, the country of residence would provide foreign tax credit (known as FTC) for the income which was subjected to tax in the country of source.