Foreign Tax Credit for Returning NRIs: Form 67 (Now Form 44), the Lower-of-Two Rule, and the Carry-Forward India Refuses to Give You

A Bengaluru-born product manager moves home to Pune in August 2025 after seven years in Texas. For the year he returns he is Resident but Not Ordinarily Resident, an RNOR, and the year after he becomes an ordinary resident. His US employer keeps paying a final tranche of salary and a vested bonus into his US account after the move, and the US withholds federal tax on it. India, now seeing him as a resident, wants to tax that same income too. One paycheck, two tax authorities, and a real risk of paying close to 50 per cent in total if he does nothing.

Nothing has to be lost, but the relief is narrower and more procedural than people assume. India will credit the US tax he already paid against the Indian tax on the same income, so he pays the higher of the two rates once rather than both stacked. What it will not do is hand back the excess when the foreign rate is higher, and it will not let him carry an unused credit into next year. The mechanism is the foreign tax credit, claimed under Section 90 (where a treaty exists) or Section 91 (where one does not), governed by Rule 128, and filed through Form 67, which from April 1, 2026 is renumbered Form 44 under the new Income-tax Rules, 2026.

The 30-second answer: The foreign tax credit lets India credit tax you paid abroad against your Indian tax on the same income, so one income stream is not fully taxed twice. It is claimed under Section 90 (treaty countries) or Section 91 (no treaty), governed by Rule 128, and filed through Form 67 (renumbered Form 44 from April 1, 2026). The credit equals the lower of the foreign tax paid or the Indian tax payable on that same income, can never exceed the Indian tax, and is never refunded or carried forward if the foreign tax is higher. It matters mainly once you are resident or RNOR with foreign income in your Indian return, not as a pure non-resident. Form 67 is now relaxed: file it by the end of the relevant assessment year, December 31, 2026 for AY 2026-27, covering the belated-return window.

If you have not yet mapped your full filing, start with the hub: the NRI ITR filing guide for AY 2026-27. This piece sits underneath it and goes deep on one thing, the credit that stops your foreign income being taxed into the ground when both countries reach for it. It assumes you already know your residency status; if not, fix that first with NRI residency and the RNOR rules, because residency is what decides whether you need this form at all.

Most NRIs file Form 67 by mistake, or skip it when they should not

The single biggest error here is direction, and it costs people in two opposite ways: filing the form when foreign income was never in the Indian net, and skipping it when it was.

The DTAA relief most NRIs already understand is about Indian income. India taxes your NRO interest or your Indian dividend, and your country of residence credits that Indian tax. The foreign tax credit in this guide runs the other way: foreign income sits in your Indian return, foreign tax was paid on it, and India gives you the credit. That only ever happens when foreign income is taxable in India, and that turns entirely on your residency under Section 6.

As a pure non-resident, only Indian-source income is taxable in India. Your US salary, your UK rent, your Dubai bonus and your foreign capital gains are all outside the Indian net. There is no Indian tax on that income, so there is nothing for an Indian credit to reduce, and Form 67 is the wrong form in the wrong country. The relief you want is claimed abroad, on your US, UK or Canadian return, not in India. I see non-residents file Form 67 anyway, usually because a generic guide told them to, and it does nothing but flag the return for questions.

As an RNOR, the transition status for roughly your first two to three years back, foreign income is taxable in India only if it is derived from a business controlled in or a profession set up in India. Genuinely foreign-source income, salary for work done abroad, foreign investment income, stays exempt. So for most RNORs the credit is still academic, with one sharp exception: income that straddles the move. A US bonus paid after you land but earned partly for work done in India, or income India treats as accruing here, can fall into the Indian net while RNOR. That sliver is where an RNOR genuinely needs the credit, and it is exactly where people either over-report (taxing foreign-earned income they did not need to) or under-report (missing the India-attributable part).

As Resident and Ordinarily Resident, worldwide income is taxable in India, and this is where the credit does its real work, every year. Your foreign salary, foreign dividends, foreign rent and foreign capital gains all enter the Indian return, and the tax you paid abroad on them is credited under Rule 128. So the honest framing is this: the foreign tax credit is a recurring concern once you are ROR, an occasional one for RNOR on crossover income, and a non-event for a clean non-resident. Get the residency call right before you touch the form, because filing Form 67 for income India is not taxing is not just pointless, it invites scrutiny you do not want.

Section 90 and Section 91 give the same outcome by different routes

India grants the credit through two provisions, and which one applies turns only on whether a treaty exists with the country that taxed your income.

Section 90 (and 90A) is the treaty route. Where India has a Double Taxation Avoidance Agreement with the source country, the treaty's relief article governs. All four phase-one markets qualify: India has comprehensive treaties with the US, UK, UAE and Canada. The treaty usually grants relief by the credit method, occasionally by exemption, and crucially it carries tie-breaker and limitation rules a returning dual resident may need. Section 90A covers agreements with specified associations rather than governments and works the same way for our purposes.

Section 91 is the unilateral route. Where India has no treaty, Section 91 still grants relief on its own. The credit is the lower of the Indian rate or the foreign rate applied to the doubly-taxed income, which produces the same lower-of-two result in practice. The difference is protection, not arithmetic: Section 91 carries none of the treaty's tie-breaker or saving-clause machinery, and it is confined to income that is genuinely doubly taxed.

For returning NRIs from the US, UK, UAE or Canada you are almost always in Section 90 territory. Section 91 only matters if your foreign income came from a no-treaty jurisdiction. Either way Rule 128 is the common rulebook and Form 67 the common form. One forward-looking point worth knowing now: under the new Income-tax Act, 2025, in force from April 1, 2026, these provisions are renumbered. Treaty relief moves to Section 159 and the no-treaty unilateral relief to Section 160, with the same lower-of-two logic. For AY 2026-27 you still cite Section 90 and 91, because the 1961 Act governs income up to March 31, 2026, but a return filed for tax year 2026-27 will speak the new language. The treaty mechanics sit in DTAA relief for NRIs and DTAA mechanics, TRC and Form 10F.

The credit is the lower of two taxes, and that is the whole game

Rule 128 fixes the size of the credit with one governing idea, and almost every painful surprise in this area follows from it. The credit you get in India is the lower of the foreign tax actually paid on the doubly-taxed income, or the Indian tax payable on that same income. You never get more than the Indian tax on that slice, because the credit's only job is to remove India's double count, not to refund the foreign country's tax. Three consequences follow, and each one catches people out.

When the foreign rate is lower than the Indian rate, you still pay the gap to India. The credit wipes out the Indian tax matched by foreign tax and you pay the difference. This is the common case for a US software professional moving home, because US effective rates on a normal salary, after the standard deduction and brackets, often land below India's marginal 30-plus rate. You are not double taxed, but you do bear the higher Indian rate overall, and the cash you owe India can be larger than you expect precisely because the US took relatively little.

When the foreign rate is higher than the Indian rate, India caps the credit and the surplus is lost. If the UK taxed a slice at 40 per cent and India would tax it at 21, the Indian credit is limited to 21. The extra 19 per cent is not refunded by India, full stop. This bites hardest on UK rental income and high-bracket UK or Canadian employment income. The surplus is dealt with, if at all, in the source country, and here India and the US part ways in a way that matters: the US Foreign Tax Credit on Form 1116 lets you carry unused credit back one year and forward ten. India has no equivalent. There is no carry-back and no carry-forward of an unused Indian foreign tax credit. If the Indian tax on a slice of income is nil or small in the year the foreign tax was heavy, the unused portion simply evaporates. People who assume Indian FTC behaves like the US credit plan badly around this; it does not.

The credit is also computed currency by currency and head by head, at a rate you do not get to choose. Rule 128 requires foreign tax to be converted into rupees at the telegraphic transfer buying rate on the last day of the month immediately preceding the month in which the tax was paid or deducted, not the spot rate your bank gave you and not the rate on the day you remitted. And it is worked out income head by income head, so foreign salary, foreign interest and foreign capital gains are each tested separately against the Indian tax on that head. You cannot pool a high-taxed foreign rent against a low-taxed foreign capital gain to soak up more credit.

Two limits on what foreign tax even counts. The credit is available against Indian tax, surcharge and cess only, never against interest, fee or penalty, so a foreign tax credit will not soften an Indian late-filing penalty. And foreign tax that is disputed in the source country is not creditable until the dispute is settled, and then only if you furnish evidence of settlement and payment within six months from the end of the month the dispute ends. Do not claim credit for tax you are still contesting abroad.

Put real numbers on the lower-of-two rule

Take the Pune product manager from the opening. For FY 2025-26 assume he is ROR (an RNOR would shield genuinely foreign income, so the credit case is cleanest as ROR), and a tranche of US employment income lands in his Indian return. The US-source salary brought in, converted at the prescribed rate, is Rs 30,00,000. The US federal tax actually paid on that slice runs to an effective 24 per cent, so Rs 7,20,000. His Indian rate on the slice, taking 30 per cent plus 4 per cent cess and no surcharge at this level for simplicity, is an effective 31.2 per cent.

The Indian tax on the doubly-taxed income is Rs 30,00,000 at 31.2 per cent, or Rs 9,36,000. The lower-of-two test compares the foreign tax paid, Rs 7,20,000, against the Indian tax payable, Rs 9,36,000, and the credit is the lower figure, Rs 7,20,000. The residual Indian tax he actually pays is Rs 9,36,000 minus Rs 7,20,000, or Rs 2,16,000. So instead of paying Rs 7,20,000 in the US and a fresh Rs 9,36,000 in India, a stacked Rs 16,56,000, he pays Rs 7,20,000 abroad plus Rs 2,16,000 in India, a total of Rs 9,36,000. That is the higher of the two rates applied once, which is exactly what the credit method is built to deliver. Because the US rate sat below the Indian rate, he recovers the entire US tax and simply tops up the gap. He files Form 67 reporting the income, the 24 per cent US tax and the credit, attaches his W-2 and 1040 acknowledgement, and is done.

Now flip the rate relationship, which is where the cap and the missing carry-forward draw blood. A returning NRI from London, ROR for FY 2025-26, has UK rental income of Rs 12,00,000 net, brought into her Indian return at the prescribed rate. The UK taxed it at her higher marginal rate, an effective 40 per cent, so Rs 4,80,000. In India the same rent is house-property income: after the 30 per cent standard deduction under Section 24 the taxable base is Rs 8,40,000, and at her effective Indian rate of about 20.8 per cent the Indian tax works out to roughly Rs 1,74,720.

The lower-of-two test compares the foreign tax paid, Rs 4,80,000, against the Indian tax payable, Rs 1,74,720, and the credit is the lower, Rs 1,74,720. That fully extinguishes the Indian tax on the rent, so her residual Indian liability on it is nil. But the excess UK tax, Rs 4,80,000 minus Rs 1,74,720, or Rs 3,05,280, is not refunded by India and cannot be carried to next year. Had she instead earned that Rs 12,00,000 as a low-taxed foreign dividend taxed abroad at, say, 10 per cent (Rs 1,20,000), the credit would have been capped at the foreign tax of Rs 1,20,000 and she would still owe India the Rs 54,720 gap. The lesson the two cases together teach: the credit never makes you whole on a high-taxed foreign income, and it never reduces your Indian tax below zero. Plan around the cap, do not assume it away.

There is a timing twist worth attaching to the London case. Suppose she missed the original ITR due date and filed a belated return under Section 139(4) in November 2026. Under the post-2022 rule she can still file Form 67 up to the end of AY 2026-27, December 31, 2026, and claim the credit on that belated return. In an old-rule year the credit would likely have been denied for a late form, and she would have had to argue the directory-versus-mandatory point before a tribunal. Under the current rule she files by year-end and the credit stands.

Form 67, the deadline that stopped being a trap, and the Form 44 changeover

The credit does not flow automatically. Rule 128(9) makes Form 67 a precondition. It is an online statement of your foreign income and the foreign tax paid or deducted on it, filed on the e-filing portal and verified with a digital signature or EVC. You cannot file it on paper. It captures, country by country, the foreign income, the rate and amount of foreign tax, and the credit claimed under Section 90, 90A or 91.

The timeline is the part most readers get wrong, because the old rule was brutal and the new one is forgiving. Before April 1, 2022, Form 67 had to be filed on or before the due date of the original return under Section 139(1), and assessing officers routinely denied the credit for a day's delay. From April 1, 2022 the rule was relaxed: Form 67 can now be furnished on or before the end of the relevant assessment year, which, because a belated return under Section 139(4) also runs to the end of the assessment year, effectively lets you claim the credit on a belated return. For AY 2026-27 that deadline is December 31, 2026. For an updated return under Section 139(8A), Form 67 must be furnished on or before the date you file that updated return, so if you are using the updated-return window to bring in a missed credit, file the form by the same date.

On top of the relaxed rule, the tribunals have gone further. Benches from ITAT Indore to the Madras High Court have held that filing Form 67 is directory, not mandatory, so a late or even missed form is a procedural lapse that does not by itself extinguish a substantive credit right granted by a treaty under Section 90. That is genuinely helpful, but it is a fallback. Treat the rule as the rule: file Form 67 before or with the return that carries the credit and you avoid the fight. Relying on a tribunal to rescue a missed form is a position of weakness, not a filing strategy.

Now the change that arrives this year, and that nobody filing in early 2026 should miss. Under the new Income-tax Act, 2025 and the Income-tax Rules, 2026, effective April 1, 2026, Form 67 is renumbered Form 44, notified under Rule 76. The terminology shifts too: "previous year" and "assessment year" collapse into a single tax year, and the deadline is expressed as 12 months from the end of the relevant tax year, with the return filed within the time under the new Section 263 (the successor to Section 139). For your AY 2026-27 filing, covering income up to March 31, 2026, you still use the old Form 67 under Rule 128, because the 1961 Act governs that income. Form 44 applies from tax year 2026-27 onward.

Two new requirements in Form 44 raise the bar for higher earners, and they are not cosmetic. First, where the foreign tax you paid for a tax year is Rs 1 lakh or more, Form 44 must be certified by a chartered accountant, the same way a transfer-pricing or audit form is. A returning ROR from the US or UK with a normal professional income will routinely cross Rs 1 lakh of foreign tax, so this will become a recurring cost for exactly the people this guide is written for. Budget for the CA certificate, do not discover it the week the return is due. Second, Form 44 builds in a clawback intimation: if foreign tax you already credited in India is later refunded to you abroad, through a loss carry-back, a revised foreign return, or any similar event, you must intimate the department through the same form. India expects you to give back the Indian relief you no longer deserve, and the form now has a slot for it. Keep this in mind if you are the kind of taxpayer who amends a US return after the fact.

The reverse case: claiming credit abroad for Indian tax

The foreign tax credit is not a one-way street, and for most NRIs the reverse direction matters more day to day. When India taxes your Indian-source income, typically through TDS, your country of residence usually lets you credit that Indian tax against its own tax on the same income. This is the mirror of everything above, and it is governed by the other country's rules, not by Rule 128 or Form 67. Get this direction right and you stop overpaying at home on income India already taxed.

In the United States, a citizen, green-card holder or tax resident claims the credit on Form 1116, attached to the Form 1040. The Indian tax, for example the 15 per cent treaty TDS on NRO interest or the tax on Indian capital gains, becomes a foreign tax credit against US tax on that income, capped at the US tax on the foreign-source income computed by category. The US credit, unlike India's, can be carried back one year and forward ten. The India-US treaty's saving clause means a US citizen cannot use the treaty to pull the income off the US return at all; the foreign tax credit is the only relief, which is why getting the Indian TDS rate right at source is so important.

A United Kingdom resident claims Foreign Tax Credit Relief on the foreign pages of the Self Assessment return, crediting Indian tax against the UK tax on the same income, capped at the UK tax on that slice. A Canadian resident claims a foreign tax credit on the federal and provincial returns for Indian tax paid, again capped at the Canadian tax on the foreign income. The UAE is the clean case: it levies no personal income tax, so there is no second tax to credit at all. The entire benefit of the India-UAE treaty sits in the lower Indian withholding rate, not in any UAE credit, which is why a Dubai resident's planning is all about the TRC and Form 10F at source, never about a foreign tax credit form.

Two practical points for the reverse case. The timing has to line up: claim the credit in the foreign year that matches when the income was taxed, and because the Indian financial year rarely matches the foreign tax year, keep records of the Indian TDS and the period it relates to. Your evidence abroad is the Indian Form 16A or TDS certificate, your Indian ITR, and the bank or registrar statements showing the deduction. For getting the Indian rate down in the first place, see how to reduce NRO TDS using the DTAA and TDS for NRIs and how to claim refunds.

A decision table for whether you even need Form 67

Your status and income	Is foreign income taxed in India?	Do you file Form 67 / Form 44?	Where the real relief sits
Pure non-resident, foreign salary or investments	No	No	Claim credit abroad (Form 1116, UK FTCR, Canada FTC)
RNOR, genuinely foreign-source income	No	No	None needed in India; foreign income exempt
RNOR, income controlled from or accruing in India	Yes, that slice	Yes, for that slice	Indian FTC on the India-taxable part only
ROR, foreign income taxed abroad at a lower rate	Yes	Yes	Indian FTC, then top up the gap to India
ROR, foreign income taxed abroad at a higher rate	Yes	Yes	Indian FTC capped; chase the surplus abroad, not in India
UAE resident, Indian-source income	India taxes it	No (no foreign income in India)	TRC + Form 10F to cut Indian TDS; no UAE credit exists

The documents that actually back the claim

Rule 128(8) sets out what supports the credit, and the portal upload has to reconcile with the numbers in Form 67 and your ITR. You keep three things. A statement of the foreign income and the foreign tax, identifying the income, the country and the tax paid or deducted head by head. Proof of payment or deduction of that foreign tax, which can be a certificate from the foreign tax authority, a certificate from whoever deducted it (your foreign employer or bank), or evidence you sign yourself, namely an acknowledgement of your foreign tax return together with proof of payment or of the tax withheld. And Form 67 itself, filed online before the return that carries the credit.

In plain terms, the everyday documents NRIs rely on are the foreign tax return and its acknowledgement (a US Form 1040 with the IRS acceptance, a UK Self Assessment calculation, a Canadian Notice of Assessment), a withholding statement (a US W-2 or 1099, a UK P60 or P45, payroll slips showing tax deducted), and bank or payroll records showing the tax actually paid. Two recurring frictions: the foreign tax year and the Indian financial year rarely align, so you will often be apportioning one foreign year's tax across two Indian years, and you must keep that working; and the rupee conversion must use the prescribed telegraphic transfer buying rate, not your bank's rate, so document the rate you used. From April 1, 2026, remember the new overlay: cross Rs 1 lakh of foreign tax and Form 44 needs a CA certificate on top of all of this.

Edge cases worth knowing before you file

You are RNOR, not ROR. As an RNOR your genuinely foreign income is usually exempt in India, so there is no Indian tax to credit and Form 67 is moot for that income. The credit only bites on income an RNOR is actually taxed on in India, such as income from a business controlled in India. Do not file Form 67 for income India is not taxing; confirm your status first with the residency guide.

Income that straddles the move. A bonus or RSU vesting relating partly to work done abroad and partly after you returned can be split, with only the India-attributable part taxed here and the foreign part potentially exempt during RNOR years. This is exactly where residency, sourcing and the credit interact, and it is fact-heavy. For equity comp specifically, read RSU and ESOP taxation for NRIs.

401(k) and other deferred US accounts. A known mismatch: India may tax accretion in a US retirement account year by year once you are resident, while the US taxes it only on withdrawal after 59.5. By the time the US tax is paid, the Indian year for the matching income may be long closed, and because India gives no carry-forward of credit, lining up a clean foreign tax credit can be impossible. There is no tidy answer; the position is genuinely awkward and worth specialist advice. See NRI pension taxation and retirement planning across two countries.

Foreign asset reporting is a separate obligation. Once you are ROR, holding foreign income and foreign assets triggers Schedule FA reporting in your Indian ITR, independently of the credit. The two are different duties and you owe both, even in a year you claim no credit. See Schedule FA foreign asset reporting.

Credit against MAT or AMT. If you are liable to minimum alternate tax or alternate minimum tax, the credit is allowed against that tax in the same way as against normal tax, but any excess foreign credit available against the minimum tax over what is available against the normal tax is ignored when computing your MAT or AMT credit carry-forward. This is a specialist corner that mostly affects those with business income, not salaried returnees.

The closing read

The honest read is that the foreign tax credit is the returning NRI's most important and most misunderstood relief, and it is more limited than the word "credit" suggests. It is not a way to avoid Indian tax and it is not free money. It is capped at the lower of the foreign tax paid or the Indian tax on the same income, it never reduces your Indian bill below zero, and, unlike the US Form 1116 credit, India lets you carry nothing forward. You end up paying the higher of the two rates once, and any surplus foreign tax is your problem to recover abroad, if at all.

Two mistakes account for most of the damage. The first is direction: a pure non-resident does not need an Indian foreign tax credit, because foreign income is not in the Indian net to begin with, and an RNOR needs it only on income that crosses the residency line. Sort your residency before you sort the credit, and do not file Form 67 for income India is not taxing. The second is the form. Form 67 is mandatory, and although the post-April-2022 deadline and a friendly run of tribunal decisions have made a late filing survivable, the clean move is to file it before or with the return that carries the credit, by the end of the relevant assessment year, December 31, 2026 for AY 2026-27. From April 1, 2026 it becomes Form 44, and if your foreign tax for the year is Rs 1 lakh or more, which a normal ROR returning from the US or UK will easily cross, budget for a chartered accountant's certificate as a standing annual cost. Convert at the prescribed telegraphic transfer rate, keep your foreign payment proof, and the credit does quietly what it was built to do: tax you once, at the higher rate, and no more. If your situation involves a US retirement account, business income with MAT, or a large straddle-year bonus, that is the point to pay a cross-border CA rather than rely on a blog, this one included.

Related guides

• NRI ITR filing guide for AY 2026-27
• DTAA relief for NRIs
• DTAA mechanics: TRC and Form 10F
• DTAA tie-breaker and dual residency
• NRI residency and RNOR rules
• How to reduce NRO TDS using the DTAA
• TDS for NRIs and how to claim refunds
• NRI dividend tax in India
• Capital gains tax for NRIs on shares and mutual funds
• NRI pension taxation
• RSU and ESOP taxation for NRIs
• Schedule FA: foreign asset reporting
• Retirement planning across two countries
• All taxation guides

This guide is general information, not tax advice, and reflects rules as understood for AY 2026-27 (FY 2025-26) as of April 2026, including the transition to the Income-tax Act, 2025 and the renumbering of Form 67 to Form 44 from April 1, 2026. Residency tests, treaty positions, the lower-of-two computation, the Form 67 and Form 44 timelines, the new CA-certification threshold and the source-country credit rules can change, and several positions noted here, including the treatment of US retirement accounts, are genuinely awkward or debated. Your foreign-country treatment depends on rules outside India that this guide does not fully cover. Confirm the current rules and consult a qualified cross-border tax adviser before acting.