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New Foreign Tax Credit Guidelines On The Cards For Indian Firms

by Lorys Charalambous, Tax-News.com, Cyprus

15 December 2004


According to reports in the Indian press, the Ministry of Finance is examining issues surrounding the granting of foreign tax credits in India in a bid to tidy up the current rules and provide more certainty for Indian firms.

Indian companies are taxable on their global profits, and if they have established overseas branches, they can claim an FTC in respect of taxes paid abroad against their Indian tax liabilities.

However, an absence of proper guidelines in this area makes the process of claiming FTCs for Indian firms somewhat fraught.

Under the present system, taxpayers can opt either to follow the tax treaty provisions or those of the Indian domestic tax laws, whichever are more beneficial. Nevertheless, in the absence of guidelines for claiming FTCs under income tax rules, Indian companies often have to rely solely on treaty laws.

“Claiming an FTC based on each individual tax treaty means that the credit has to be computed on a country-by-country basis,” a senior official with a software firm told the Economic Times.

“Such computation is not only cumbersome, but also inefficient. Excess credit available in high tax jurisdictions cannot be used to offset low taxes in other countries,” the official observed.


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