Double Taxation Relief and Foreign Tax Credit under the Income Tax Act 2025 (Sections 159, 160, Rule 76)

If a resident of India pays tax abroad on income that is also taxed in India, the Income-tax Act, 2025 gives relief in two ways. Where India has a double taxation agreement with that country, section 159 and the treaty apply. Where there is no agreement, section 160 gives a deduction at the lower of the Indian rate and the foreign rate. In both cases the credit is claimed under rule 76 of the Income-tax Rules, 2026, with Form No. 44.

This guide covers who can claim, how the credit is computed, which documents are needed and by when. Every point below is taken from the Act (as amended by the Finance Act, 2026) and the Rules, with the section or rule number beside it. The examples use tax year 2026-27 and assumed figures. Last reviewed against that text on 10 November 2026.

What is double taxation relief under the Income-tax Act, 2025?

Double taxation happens when the same income is taxed in India and in another country. The Act has a part on relief for this. Section 159 deals with countries and territories that India has an agreement with. Section 160 deals with all other countries.

What does section 159 say about tax treaties?

Section 159(1) lets the Central Government enter into an agreement with another country or a "specified territory" (an area outside India notified by the Central Government, section 159(9)(b)). Section 159(2) allows a "specified association" in India to enter into an agreement with a specified association in a specified territory, which the Central Government can notify and adopt.

Under section 159(3), an agreement can cover:

• relief for income that has borne tax both under this Act and in the other country, or for income-tax chargeable under both laws, to promote mutual economic relations, trade and investment;
• avoidance of double taxation, without creating room for non-taxation or reduced taxation through evasion or avoidance, including treaty-shopping;
• exchange of information to prevent or investigate evasion or avoidance; and
• recovery of tax.

Treaty or Act: which one applies?

Where an agreement applies to an assessee, the provisions of the Act apply only to the extent they are more beneficial to that assessee (section 159(4)). There is one carve-out: Chapter XI applies even if it is not beneficial (section 159(6)). Rule 128 sets out cases where Chapter XI (the General Anti Avoidance Rule chapter) does not apply, for example where the total tax benefit to all parties in the tax year does not exceed Rs 3 crore.

How are terms in a treaty read?

A term defined in the agreement has the meaning given there. If the agreement does not define it but the Act does, the Act's meaning applies, along with any explanation given by the Central Government (section 159(7)(a)). Section 159(7)(b) and (c) deal with terms defined in neither place.

What must a non-resident show to claim treaty relief?

A non-resident can claim relief under an agreement only if two things are in place (section 159(8)):

1. a certificate that he is a resident of that country or territory, obtained from that country's or territory's Government; and
2. the other documents and information that are prescribed.

Rule 75(1) prescribes Form No. 41 for the other documents and information. The assessee must keep the documents that back the Form 41 details, and the tax authority can call for them (rule 75(2)). For tax deducted on payments to non-residents, see our guide on TDS on payments to non-residents.

What if an Indian resident needs a certificate of residence?

A resident of India who needs a certificate of residence for an agreement applies in Form No. 42 to the Assessing Officer. On being satisfied, the Assessing Officer issues the certificate in Form No. 43 (rule 75(3) and (4)).

What if there is no tax treaty with the country? (Section 160)

A person who is resident in India in a tax year can claim relief under section 160(1) if three things hold:

• the income accrued or arose outside India in that tax year, and is not deemed to accrue or arise in India;
• he paid income-tax on it, by deduction or otherwise, in a country with which there is no section 159 agreement; and
• he proves that payment.

The relief is a deduction from the Indian income-tax payable, computed on the doubly taxed income at the Indian rate of tax or the rate of tax of that country, whichever is lower, and at the Indian rate if both are equal. Section 160(2) gives the same relief to a non-resident assessed on his share in the income of a registered firm assessed as resident in India.

How are the two rates defined?

Section 160(3) fixes the meaning:

Term	Meaning under section 160(3)
Indian rate of tax	Indian income-tax after reliefs due under the Act, but before the relief under this Part, divided by total income
Rate of tax of the said country	Income-tax and super-tax actually paid in that country, after all reliefs due there but before treaty-type double taxation relief there, divided by the whole income as assessed in that country
Income-tax (for a foreign country)	Includes any excess profits tax or business profits tax charged on profits by the government of any part of that country or a local authority

Example 1: How is section 160 relief calculated?

Ravi is resident in India. In tax year 2026-27 his total income is Rs 20,00,000, which includes Rs 2,00,000 earned in a country with no agreement with India. That country taxed the Rs 2,00,000 and he paid Rs 40,000 there. Assume his Indian income-tax after reliefs, before section 160 relief, is Rs 3,00,000.

Step	Working	Result
1. Indian rate of tax	Rs 3,00,000 / Rs 20,00,000	15%
2. Rate of tax of the foreign country	Rs 40,000 / Rs 2,00,000 (assessed there)	20%
3. Lower of the two	Lower of 15% and 20%	15%
4. Relief	15% of Rs 2,00,000	Rs 30,000

Ravi gets a deduction of Rs 30,000 from his Indian tax. The remaining Rs 10,000 of foreign tax (Rs 40,000 minus Rs 30,000) does not reduce Indian tax under this section. The figures are assumed for illustration.

How does the foreign tax credit work under rule 76?

Rule 76 is the machinery for the credit. A resident gets credit for foreign tax paid in a country or specified territory outside India, by deduction or otherwise, in the tax year in which the matching income is offered to tax or assessed to tax in India (rule 76(1)). The main points:

• Which foreign tax counts. For a treaty country, the tax covered under the agreement. For any other country, tax in the nature of income-tax as described in section 160(3)(a) (rule 76(3)).
• Income spread over several years. Credit is allowed across those years in the same proportion as the income is offered to tax or assessed in India (rule 76(2)).
• Against what. The credit is against tax, surcharge and cess payable under the Act. It does not apply to interest, fee or penalty (rule 76(4)).
• Source by source. Credit is worked out separately for each source of income from each country, and then added up (rule 76(7)).
• Lower of two amounts. For each source, credit is the lower of the Indian tax on that income and the foreign tax paid on it. If the foreign tax exceeds the amount payable under the agreement, the excess is ignored (rule 76(7)(a)).
• Currency. Foreign tax is converted at the telegraphic transfer buying rate on the last day of the month before the month in which the tax was paid or deducted (rule 76(7)(b)).
• Section 206. Where tax is payable under section 206, credit is allowed against it in the same way as against normal tax (rule 76(8)). Rule 76(9) deals with excess credit when computing credits under section 206.

Example 2: How is the credit computed under rule 76?

Meena is resident in India. In tax year 2026-27 she offers two foreign incomes to tax in India. Assumptions are in the table.

	Source A (treaty country)	Source B (another country)
Foreign tax paid	USD 1,000, paid in July 2026	Rs 30,000
Conversion	TT buying rate on 30 June 2026 assumed Rs 85, so Rs 85,000	Already in rupees
Tax payable under the treaty on this income	Rs 60,000 (assumed)	Not applicable
Foreign tax after ignoring excess over treaty	Rs 60,000 (Rs 25,000 excess ignored)	Rs 30,000
Indian tax on this income	Rs 1,10,000 (assumed)	Rs 24,000 (assumed)
Credit: lower of the two	Rs 60,000	Rs 24,000

Total credit is Rs 60,000 + Rs 24,000 = Rs 84,000. In Source B, the Rs 6,000 of foreign tax above the Indian tax on that income gets no credit.

What documents are needed to claim foreign tax credit, and by when?

Credit is allowed on furnishing the following (rule 76(10) and (11)):

1. a statement of income from the foreign country offered to tax for the tax year, and of foreign tax deducted or paid on it, in Form No. 44, verified as the form specifies; and
2. a certificate or statement of the nature of income and tax deducted or paid, from the foreign tax authority, from the person who deducted the tax, or signed by the assessee. It is valid only with an online payment acknowledgement, bank counterfoil or challan where the assessee paid, or proof of deduction where tax was deducted.

Item	Requirement	Reference
Filing time for Form 44 and the certificate	Within twelve months from the end of the relevant tax year, and the return for that year must be furnished within the time in section 263(1) or (4)	Rule 76(12)
Updated return under section 263(6)(a)	Furnish on or before the date the updated return is furnished, for income in that return	Rule 76(13)
Foreign tax later refunded	Furnish Form 44 again, for example after carry back of loss or revision of return	Rule 76(14)
Who must have Form 44 verified by an accountant	A company; any other assessee whose foreign tax paid for the tax year is Rs 1,00,000 or more	Rule 76(16)
Disputed foreign tax: evidence after settlement	Within six months from the end of the month the dispute is finally settled, with Form 45	Rule 76(6), (15)
Form 45 verification	By an accountant if Form 44 for that year needed one	Rule 76(17)

Can credit be claimed for foreign tax that is under dispute?

Not at first. No credit is available for foreign tax that the assessee disputes in any manner (rule 76(5)). Once the dispute is finally settled, the assessee can furnish, within six months from the end of that month, evidence of settlement, evidence that the foreign tax liability has been paid, and an undertaking that no refund of that amount has been or will be claimed. The credit is then allowed for the year in which the income was offered to tax or assessed in India (rule 76(6)).

Real-life examples

A freelancer with a foreign client. Priya, a resident designer, earns USD from a client abroad. The client's country withholds tax before paying her. She offers the full amount in her Indian return, keeps the withholding certificate, and files Form 44 within the rule 76(12) window. Her foreign tax for the year is under Rs 1,00,000, so an accountant's verification of Form 44 is not required by rule 76(16)(b) (she is not a company).

A company with a disputed foreign levy. A company, Kumar Exports Private Limited, contests a tax demand in the country where its subsidiary sits. Under rule 76(5) it cannot claim credit for the contested part for now. When the dispute ends, it files Form 45 with proof of payment and the no-refund undertaking inside six months. Because it is a company, both Form 44 and Form 45 need an accountant's verification (rule 76(16)(a), (17)).

A non-resident claiming treaty benefit in India. A non-resident lender receives interest from an Indian borrower and wants the treaty rate. Without a residence certificate from his home government and Form 41, he cannot claim treaty relief (section 159(8), rule 75).

Common mistakes

• Claiming credit for the full foreign tax. Credit is capped at the Indian tax on that income, source by source, and excess over the treaty amount is ignored.
• Using the wrong exchange rate. Rule 76(7)(b) uses the TT buying rate on the last day of the month before the month of payment or deduction, not the rate on the day income was received.
• Missing the twelve-month window. Form 44 and the certificate are due within twelve months from the end of the relevant tax year (rule 76(12)).
• Treating a disputed tax as creditable. It is not, until the dispute settles and rule 76(6) is complied with.
• Choosing ITR-1. A person who has claimed relief under section 159 or deduction under section 160 is not eligible for Form SAHAJ (ITR-1), nor are those with foreign assets or foreign income (rule 164(3)).
• Forgetting the credit is not for interest, fee or penalty. It applies to tax, surcharge and cess only (rule 76(4)).

What else do the Rules say about treaties?

• If an eligible assessee's transfer price is accepted under the safe harbour in section 167, mutual agreement procedure under the treaty cannot be invoked (rule 93). The same applies to an eligible business where the safe harbour option for income attribution under rule 101 is exercised and not declared invalid (rule 102). See also our guide on transfer pricing and arm's length price.
• Information received under a section 159 agreement can be included in the Annual Information Statement (rule 245(2)).

Where this is in the Act

• Section 159: agreements with countries and specified territories, treaty prevails where more beneficial, residence certificate for non-residents (159(8)).
• Section 160: relief where no agreement exists; definitions of Indian rate and foreign rate (160(3)).
• Rule 75: Form 41 (documents), Form 42 (application), Form 43 (certificate of residence).
• Rule 76: foreign tax credit, Form 44, Form 45.
• Rule 207: meaning of telegraphic transfer buying rate. Rule 164(3): ITR-1 ineligibility. Rules 93, 102, 128, 245: related carve-outs.

How do CA firms keep track of foreign tax credit claims?

For a CA firm, the hard part is the paper trail: foreign tax certificates, residence certificates, exchange rates for each payment month, and the twelve-month Form 44 window for each client. Finexo's practice management software tracks these deadlines and document requests across your client book. It does not compute the credit or file the forms for you.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026) and the Income-tax Rules, 2026. It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.