Rule 76 of Income explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 76 of the Income-tax Rules, 2026 allows a resident credit for foreign tax in the tax year the corresponding income is taxed in India, computed source by source as the lower of the Indian tax and the foreign tax, converted at the telegraphic transfer buying rate on the last day of the month preceding payment. The claim is made in Form No. 44, which replaces Form 67 and now requires accountant verification in defined cases.
The core entitlement — sub-rules (1) to (3)
A resident assessee is allowed credit for foreign tax paid in a country or specified territory outside India, by way of deduction or otherwise, in the tax year in which the corresponding income has been offered to tax or assessed to tax in India.
Where the income is offered to tax across more than one tax year, sub-rule (2) spreads the credit across those years in the same proportion in which the income is offered to tax or assessed to tax in India.
Sub-rule (3) defines what "foreign tax" means:
- (a) for a treaty country or specified territory — an agreement for relief or avoidance of double taxation in terms of section 159 — the tax covered under that agreement; and
- (b) for any other country or specified territory — the tax payable under the law in force there in the nature of income-tax referred to in section 160(3)(a).
What the credit can and cannot be set against — sub-rule (4)
Credit is available against tax, surcharge and cess payable under the Act, but not in respect of any sum payable by way of interest, fee or penalty.
Sub-rule (4) names surcharge and cess as part of the amount against which credit runs. That settles a question that generated litigation under the 1962 regime. Equally, the exclusion of interest, fee and penalty is express: a large foreign tax credit does not reduce section 423-type interest exposure, and computing a shortfall net of unabsorbed FTC will understate the interest.
Disputed foreign tax — sub-rules (5), (6) and (15)
No credit is available for any foreign tax which is disputed in any manner by the assessee. Sub-rule (6) then supplies the route back:
If the assessee, within six months from the end of the month in which the dispute is finally settled, furnishes:
- evidence of settlement of the dispute;
- evidence that the liability for the foreign tax has been discharged; and
- an undertaking that no refund of that amount has been, directly or indirectly, claimed or shall be claimed,
then the credit for the disputed tax is allowed for the year in which the income was offered to tax or assessed to tax in India — not for the year of settlement. Sub-rule (15) prescribes the vehicle: an intimation in Form No. 45 together with the evidence of settlement, including evidence of payment.
Computing the credit — sub-rule (7)
The credit is the aggregate of amounts computed separately for each source of income arising from a particular country or specified territory, and it is given effect as follows:
- (a) the credit is the lower of (i) the tax payable under the Act on that income and (ii) the foreign tax paid on that income — and where the foreign tax paid exceeds the amount payable in accordance with the double taxation agreement, that excess is ignored;
- (b) the credit is determined by converting the currency of payment 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.
Two mechanical points follow. First, the computation is per source, per country — not a single global comparison, which is why a taxpayer with income from several countries can have unrelieved foreign tax on one source while another source is fully relieved. Second, the treaty rate is a ceiling: tax withheld abroad above the treaty rate is the taxpayer's problem to recover from the foreign authority, not India's to credit. The expression "telegraphic transfer buying rate" carries the meaning given in rule 207.
Interaction with section 206 — sub-rules (8) and (9)
Where tax is payable under section 206, foreign tax credit is allowed against that tax in the same manner as it is allowable against tax under the normal provisions.
Sub-rule (9) deals with the excess: where the credit available against section 206 tax exceeds the credit available against the normal provisions, then in computing the credit under section 206(1)(m) to (p) and section 206(2)(e) to (h) in respect of taxes paid under section 206(1) and (2), that excess shall be ignored. In effect, a taxpayer cannot convert surplus foreign tax credit into a larger carried-forward credit under the section 206 mechanism.
The documents — sub-rules (10) and (11)
Credit is allowed on furnishing:
- (a) a statement in Form No. 44 of the income from the country or specified territory offered to tax for the tax year and of the foreign tax deducted or paid on it, verified in the manner specified in the form; and
- (b) a certificate or statement specifying the nature of income and the amount of tax deducted or paid, from (i) the tax authority of the foreign country or territory, (ii) the person responsible for deduction, or (iii) signed by the assessee.
Under sub-rule (11), the certificate or statement is valid only if accompanied by:
- (a) an acknowledgement of online payment, bank counterfoil or challan where the assessee paid the tax; or
- (b) proof of deduction where the tax was deducted.
Limb (b)(iii) — a statement signed by the assessee — is generous on its face, but sub-rule (11) is what gives it teeth. A self-signed statement standing alone is not enough; the payment or deduction evidence is what makes it valid.
Timing — sub-rules (12), (13) and (14)
| Situation | Deadline for Form No. 44 and the certificate |
|---|---|
| Normal case | Within twelve months from the end of the relevant tax year in which the income was offered to tax or assessed to tax in India — and the return for that year must have been furnished within the time specified under section 263(1) or (4) |
| Updated return under section 263(6)(a) | On or before the date on which that return is furnished, to the extent it relates to income included in the updated return |
| Refund of foreign tax later arises | Form No. 44 shall also be furnished where a carry-backward of current-year loss, a revision of return or similar statement of any year, or any other reason, results in a refund of foreign tax for which credit has been claimed |
If foreign tax already credited is later refunded abroad — because a loss was carried back, a foreign return was revised, or for any other reason — the assessee must furnish Form No. 44 again. The duty is triggered by the foreign refund, whenever it happens, and there is no completed-year cut-off in the sub-rule.
The accountant verification requirement — sub-rules (16) and (17)
This is the most significant new obligation in rule 76 and has no counterpart in rule 128.
Form No. 44 shall be verified by an accountant as defined in section 515(3)(b):
- (a) where the assessee is a company; or
- (b) in all other cases, where the amount of foreign tax paid outside India for a tax year equals or exceeds Rs 1,00,000.
And under sub-rule (17), Form No. 45 — the disputed-tax intimation — must be verified by an accountant where Form No. 44 for that tax year was required to be verified by an accountant.
So a company claiming credit for any amount of foreign tax needs accountant verification, and an individual crosses into it at Rs 1,00,000 of foreign tax for the year. A salaried resident with modest foreign dividend withholding is likely below the line; a resident with a meaningful overseas portfolio or foreign consultancy income is likely above it, and the verification must be planned for rather than discovered at filing.
Rule 128 and rule 76 compared
| Point | Rule 128 (1962) | Rule 76 (2026) |
|---|---|---|
| Claim statement | Form 67 | Form No. 44 |
| Disputed-tax intimation | Part of the same process | Form No. 45 |
| Treaty reference | Section 90 / 90A | Section 159 |
| Non-treaty tax | Section 91 | Section 160(3)(a) |
| Credit against surcharge and cess | Contested | Express in sub-rule (4) |
| Exchange rate | TT buying rate, last day of preceding month | Same, with rule 207 meaning |
| Accountant verification | Not required | Company always; others at Rs 1,00,000 or more |
| Dispute settlement window | Six months | Six months from the end of the month of final settlement |
Worked example
A resident individual has consultancy income from Country X for tax year 2026-27. Tax of the equivalent of Rs 1,45,000 was withheld there in September 2026; the treaty rate would have produced Rs 1,10,000. Indian tax on that income is Rs 1,26,000.
- The foreign tax is converted at the TT buying rate on 31 August 2026 — the last day of the month immediately preceding September.
- The excess over the treaty amount — Rs 35,000 — is ignored under sub-rule (7)(a).
- Credit is the lower of Rs 1,26,000 (Indian tax) and Rs 1,10,000 (treaty-limited foreign tax) — Rs 1,10,000.
- Foreign tax paid for the year is Rs 1,45,000, which exceeds Rs 1,00,000, so Form No. 44 must be verified by an accountant even though the assessee is an individual.
- Form No. 44 and the certificate are due within twelve months from the end of tax year 2026-27, and the return must have been furnished within section 263(1) or (4).
Compliance checklist
- Match the credit year to the year the income is taxed in India, not the year the foreign tax was paid.
- Compute source by source, country by country — never as a single global comparison.
- Cap the foreign tax at the treaty amount and ignore the excess.
- Use the TT buying rate on the last day of the month preceding payment or deduction, per source.
- Test the Rs 1,00,000 accountant threshold early for non-corporate clients; companies always need it.
- Attach payment or deduction evidence — a self-signed statement alone does not satisfy sub-rule (11).
- For disputed foreign tax, diarise six months from the end of the month of final settlement and file Form No. 45.
- Re-file Form No. 44 if credited foreign tax is later refunded abroad.
- Confirm the return was filed within section 263(1) or (4) — the twelve-month window does not rescue a late return.
Common mistakes
- Claiming credit for tax withheld above the treaty rate.
- Setting foreign tax credit against interest or penalty.
- Using the year-end or transaction-date exchange rate instead of the prescribed TT buying rate.
- Overlooking accountant verification for a non-corporate claim at or above Rs 1,00,000.
- Filing a self-signed certificate without the challan or proof of deduction.
- Claiming credit for disputed tax before the dispute is settled and Form No. 45 is filed.
- Ignoring a later foreign refund of tax already credited.