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  • Category: Tax Planning

    What is meant by Foreign Tax Credit?

    Interested in knowing about foreign tax credit? Looking out for details on the web? Here, you can go through suggestions by experts and resolve your query.

    I would like to know what does the term Foreign Tax Credit mean which is related to filing income tax. There are so many terms related to Income tax but this one is really confusing me and I could not find any clear information even in financial information websites.
    Is this something beneficial to the tax payer or the employer? Request ISC members who have knowledge on this to answer my question with maximum possible detail.
    An example would also help me to understand this easily.
  • Answers

    3 Answers found.
  • If the individual is having income in two countries during a financial year, the tax paid to one country for the income from that country may be credited in the other country when you are submitting your income tax returns.
    For Example, If last year an Indian who employed in India was sent to other country for 6 months, the employer will deduct tax as per the rules of that country and pay there. When the person submits his full year returns he has to show his total income and he can claim the credit of tax amount paid in the other country.
    This is the general understanding of foreign tax credit.
    This is for avoiding double taxation
    The rules and regulations for the foreign tax credit will vary from country to country.
    More details can be obtained from a qualified tax consultant.

    always confident

  • If a person is having income from a foreign country then some income tax might have been deducted from his income in that country. If so, he can take advantage of that in his income tax return in his country by showing that amount and his tax liability will be accordingly reduced.

    Please understand that this is a non refundable facility which means you can not get your income tax refund for the tax you paid in foreign country but show it in your income tax return in your country for reduction of your total income tax by that amount.

    This is followed by most of the Govt of the world as per the treaty signed with each other for avoidance of double taxation.

    Knowledge is power.

  • Foreign tax is applicable for the employees working in abroad and the employers are of different countries. To make the point clear, let us consider an employee of Infosy's working in USA and draws different allowances apart from one's salary. In that situation, the employer would deduct taxes applicable to USA and the taxes deducted for the allowances has to be submitted to that country where the employee is working.
    The employee is also required to submit Income - tax return indicating the income earned from the different countries. Such agreement is followed in all the prevailing countries.

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