Central Board of Direct Taxes (CBDT) Issues Draft RulesThat Allow Resident Tax Payers to claim deduction or credit for taxes paid in foreign countries Monday April 18,2016

To improve ease of doing business and reduce litigation, the Central Board of Direct Taxes (CBDT) on Monday April 18,2016 issued draft rules that would allow resident tax payers to claim deduction or credit for taxes paid in foreign jurisdictions.

The draft rules have proposed that the foreign tax credit would applicable on income tax, surcharge and cesses as well as against tax payable under minimum alternate tax. 

But, the credit will not be provided for other sums such as interest, fee or penalty or taxes under dispute. 

The rules, once finalised will allow for foreign tax credit with all countries with which India has a double tax avoidance agreement as well as tax paid by Indian residents in other specified countries.

At present, such a facility is not available in the Income Tax Act, 1961 and the introduction of such rules was one of the key recommendations of the Tax Administration Reform Commission.