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DTAA Tax Credit
Indian residents earning foreign income (US dividends, UK rental etc.) get a foreign tax credit under DTAA, capped at the Indian tax on the same income. Excess foreign tax is lost.
E.g. US 25-30% withholding on dividends.
File Form 67 with your ITR, attach foreign tax payment proof. Credit allowed only against tax on the same income — not against general Indian tax.
How DTAA credit works
Under section 90 of the Income-tax Act read with the relevant DTAA article (usually Article 23 or 24), an Indian resident reports the gross foreign income, computes Indian tax at the applicable slab/rate, and then claims a Foreign Tax Credit (FTC) equal to the lower of (a) foreign tax actually paid and (b) Indian tax on the same income. Form 67 must be filed online before filing your ITR — otherwise the FTC is disallowed.
Worked example
A Bangalore-resident developer earns ₹4,00,000 of US dividends in FY 2025-26. The US deducts 25% withholding under the India-US DTAA = ₹1,00,000 foreign tax. Indian tax at the 30% slab on the same ₹4,00,000 = ₹1,20,000. FTC allowed = min(₹1,00,000, ₹1,20,000) = ₹1,00,000. Net Indian tax payable on the dividend = ₹20,000. Excess US tax (if any) is lost — India will not refund it.
When to use this
- Indian resident receiving US, UK or Singapore dividends (ESOPs vested abroad)
- Freelancer billing a US/EU client where tax was withheld at source
- Indian resident with UK rental income or Australian salary for split-residency years
- Returning NRI with previous-year foreign income reported on Indian ITR
Related reading: NRI residency rule (you need to be a resident under section 6 to claim FTC) and NRI residency test India.
FAQ
Which DTAA applies if I work in the Middle East?
India has DTAAs with UAE, Saudi Arabia, Oman, Qatar, Kuwait. UAE DTAA gives big benefits — zero local tax + India zero on UAE-source income for residents.
Can I claim DTAA as a US citizen with Indian source income?
Yes — file 1040 in US with Form 1116 (foreign tax credit) for India tax paid. India-US DTAA prevents double tax.
What is Form 67?
A statement filed with your Indian ITR claiming foreign tax credit. Mandatory before claiming credit under section 90/91. Attach proof of foreign tax payment.