ASSOCHAM suggests changes to CBDT in FTC rules

The Dollar Business Bureau

As the government is in the process of fine-tuning the tax regime with the nations which already have double taxation avoidance agreement (DTAA) with India, the industry body ASSOCHAM has suggested Central Board of Direct Taxes (CBDT) to make some changes in the planned Foreign Tax Credit rules to ascertain the Indian tax payers are subjected to double taxation incidence on income.

ASSOCHAM said in a statement “Difference in accounting practices followed by different countries would lead to a double taxation on the income of an Indian taxpayer.”

Recently, ASSOCHAM had invited Rani Singh Nair, a member of the CBDT, and held a detailed discussion on the matter. 

CBDT has formed a committee to suggest the procedure for grant of Foreign Tax Credit (FTC). Based on findings submitted by the committee, CBDT has come out with a draft seeking comments from the stakeholders. According to the draft rules, FTC is permitted to limit Indian tax.

Presenting its concerns, ASSOCHAM pointed out that it may be possible, in early years, FTC crossed the amount of Indian taxes, while in the succeeding years, Indian taxes may exceed the FTC.

“In such a case, where in the early years, the foreign taxes, in excess of the Indian taxes is a dead loss to the company; if carry forward is not allowed in the subsequent years, the company would be required to pay higher taxes,” the statement said.

The industry body said accounting mechanism may vary in countries across the world. For example, accounting mechanism followed in the source country may be cash-based whereas in India accrual-basis is followed.

Accordingly, in India, foreign income might be taxable on yearly basis while source country may tax income in the four-year period.

“In order to address this issue, it is suggested that carry forward provision be introduced in the rules and the timeline for revision of the tax return of earlier years be appropriately amended for claiming FTC in the given situations,” the statement said.