By- CA Surekha
1. Introduction
International mobility is now routine for Indian professionals. However, when a taxpayer earns income in one country and is taxable in another, a careful application of the Indian Income-tax Act becomes critical to avoid double taxation, ensure timely tax relief, and maintain disclosure compliance.
This guide provides a complete treatment of foreign salary taxation, double taxation relief under treaties, foreign tax credit through Form 67, and Schedule FA disclosures – especially in cases of mid-year relocation to or from India, focusing on the Assessment Year 2025–26.
2. Legal Foundation – Sections 5, 6, and 90 of the Income-tax Act
2.1 Section 5 – Scope of Total Income
Taxability of income in India depends on the individual’s residential status.
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A Resident and Ordinarily Resident (ROR) is taxable on global income.
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A Resident but Not Ordinarily Resident (RNOR) is taxable only on Indian-sourced income and foreign income controlled from India.
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A Non-Resident (NR) is taxed only on income received or accrued in India.
2.2 Section 6 – Residential Status Rules
An individual is considered Resident if:
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He is in India for 182 days or more during the financial year, or
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He is in India for 60 days or more in the year and 365 days or more in the preceding four years.
Among residents, an individual is Resident and Ordinarily Resident if:
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He was resident in India in two out of the ten preceding years, and
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He was in India for 730 days or more in the preceding seven years.
Others are treated as Resident but Not Ordinarily Resident.
3. Scenario A – Indian Resident Moves Abroad Mid-Year
Situation:
An individual residing in India until December 2024 moves to the USA in January 2025 for employment. Salary is earned in the USA from January to March 2025. US federal tax is withheld.
Indian Tax Treatment:
If the person qualifies as Resident and Ordinarily Resident, the foreign salary (Jan–Mar 2025) is taxable in India. Relief under the India–USA DTAA is available by claiming foreign tax credit (FTC) under Section 90, provided Form 67 is filed before the return.
Illustration:
| Particulars | Amount |
|---|---|
| US salary from Jan–Mar 2025 | USD 15,000 |
| US tax withheld | USD 3,000 |
| Exchange rate (SBI TT Buying, 31-Mar-25) | ₹83 |
| Salary in INR | ₹12,45,000 |
| US tax in INR | ₹2,49,000 |
| Indian tax on this salary | ₹3,85,000 |
| FTC allowable | ₹2,49,000 |
4. Scenario B – Returning to India Mid-Year
Situation:
An individual returns to India on 15 December 2024 after working in the USA from April to November 2024. He is a Resident and Ordinarily Resident for FY 2024–25.
Indian Tax Treatment:
US salary earned before returning to India is taxable in India, even if received in the USA. The person can claim foreign tax credit via Form 67 for US tax deducted.
Illustration:
| Particulars | Amount |
|---|---|
| US salary from Apr–Nov 2024 | USD 60,000 |
| US tax paid | USD 12,000 |
| INR conversion rate | ₹83 |
| Salary in INR | ₹49,80,000 |
| US tax in INR | ₹9,96,000 |
| Indian tax on same income | ₹11,80,000 |
| FTC allowable | ₹9,96,000 |
5. Scenario C – Tax Year Mismatch: India (FY) vs USA (Calendar Year)
Issue:
India follows a financial year ending March, but US tax returns are filed for a calendar year (Jan–Dec). This often causes a timing gap where Indian tax is due before the US return is filed.
Solution under Rule 128:
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FTC is allowed if tax is paid or deducted before filing the Indian return.
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If US tax is paid after filing the Indian return, credit can be claimed next year under Rule 128(9).
6. Reporting of Foreign Assets – Schedule FA
Applicable only if taxpayer is Resident and Ordinarily Resident.
Assets to be disclosed:
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Foreign bank accounts (even zero balance)
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Equity and mutual fund holdings
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Foreign property
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Foreign pension plans (e.g., 401(k))
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Any foreign entity interest or trust
Non-Residents and RNORs are exempt from Schedule FA.
7. Filing Form 67 – Mandatory Conditions
Legal Basis:
Form 67 must be filed under Rule 128(8) before filing the return of income under Section 139(1), in order to claim FTC under Section 90 or 90A.
Contents of Form 67:
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Country and TIN or SSN
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Nature of income (e.g., salary)
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Foreign tax paid
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Indian tax payable on same income
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Evidence of tax deduction or payment
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Date of payment
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Conversion using SBI TT Buying Rate on 31 March
Late Filing:
Form 67 must be filed before filing the ITR. Late filing disqualifies FTC unless allowed judicially.
8. Residential Status and Tax Obligation Summary
| Date of Movement | Residential Status | Foreign Salary Taxable in India | FTC via Form 67 | Schedule FA Filing |
|---|---|---|---|---|
| 1 October 2024 | Resident and Ordinarily Resident | Yes | Yes | Yes |
| 15 December 2024 | Resident and Ordinarily Resident | Yes | Yes | Yes |
| 25 December 2024 | RNOR | No | No | No |
| 10 January 2025 | RNOR | No | No | No |
| 2 February 2025 | Non-Resident | No | No | No |
9. Stepwise Compliance for AY 2025–26
Step 1: Determine residential status using Section 6
Step 2: Identify foreign salary period taxable in India
Step 3: Convert income and tax paid using SBI TT buying rate as of 31 March 2025
Step 4: File Form 67 with supporting documentation before ITR
Step 5: File Schedule FA if ROR
Step 6: Retain W-2, 1040, employer TDS certificates and Form 67 acknowledgement
10. FAQs – Foreign Salary, FTC & Form 67 (AY 2025–26)
Q1. Is Form 67 mandatory to claim FTC in India?
Yes. Under Rule 128(8), Form 67 must be filed before filing the ITR. Omission may forfeit FTC unless cured judicially.
Q2. What if foreign tax is paid after ITR is filed?
Under Rule 128(9), FTC can be claimed in the next assessment year, provided Form 67 is filed with proof of payment.
Q3. Can I claim FTC without having filed a US tax return?
Yes, if US TDS has been deducted and evidenced (e.g., payslip, W-2), FTC may be claimed.
Q4. Which exchange rate is used for conversion of foreign tax?
SBI TT Buying Rate as on 31 March of the financial year (per Rule 26).
Q5. Can Form 67 be revised?
As of now, the portal does not allow online revision of Form 67. Fresh filing with justification may be required.
Q6. Is FTC available for state taxes paid in the USA?
No. FTC under Indian law is allowed only for federal income taxes, not state or local taxes.
Q7. Can RNOR claim FTC or file Form 67?
No. FTC applies only if income is taxable in India. RNOR is not taxed on foreign salary not received in India.
Q8. Is Form 67 required if foreign income is not taxable?
No. If income is not offered to tax in India, Form 67 is not applicable.
Q9. Do I need to file Schedule FA if I am RNOR?
No. Schedule FA is applicable only for Resident and Ordinarily Residents.
Q10. Do I declare a foreign bank account with zero balance?
Yes, if you are ROR and the account was active during the year, it must be disclosed.
Q11. Is FTC allowed on foreign income taxed at a flat rate (like 15%)?
Yes, subject to proof and limitation to Indian tax payable on such income.
Q12. What if the foreign income is exempt in India?
Then no FTC is needed. Form 67 is not applicable if the income is not offered to tax.
Q13. Can Indian tax be paid now and claimed back once US return is filed?
No. Indian tax once paid cannot be refunded merely due to later FTC eligibility unless revised return is filed within time.
Q14. Is the FTC limited to foreign tax or Indian tax?
FTC is limited to the lower of foreign tax paid or Indian tax payable on the same income.
Q15. Are both employer deduction and self-paid foreign tax eligible for FTC?
Yes. As long as valid evidence is available and tax pertains to income offered in India.
11. Conclusion
For Indian residents earning foreign salary or relocating between jurisdictions mid-year, compliance under Sections 5, 6, 90, and Rule 128 is non-negotiable. Claiming foreign tax credit is not automatic and must be supported by documentary evidence and timely Form 67 filing.
Residential status determines everything – from whether the income is taxable, to whether foreign assets must be reported, and whether relief is even available.
