DTAA and Foreign Tax Credit under the Income-tax Act, 2025: Sections 159 and 160, Forms 41 to 44 and Rule 76 (Tax Year 2026-27)
CA Meet Dhrangadhariya 
July 30, 2026
CA Meet Dhrangadhariya July 30, 2026
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Last updated: 15 September 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Income earned across borders can be taxed twice, once by the country where it arises and again by the country where the earner lives. India avoids this through Double Taxation Avoidance Agreements (DTAA) and through foreign tax credit rules. In the Income-tax Act, 2025 (from 01/04/2026) these are sections 159 and 160, supported by Rules 75 and 76 of the Income-tax Rules, 2026.
| Old | New |
|---|---|
| Section 90 and 90A (agreements) | Section 159 |
| Section 91 (no agreement) | Section 160 |
| Form 10F (information for treaty claim by a non-resident) | Form 41 (Rule 75(1)) |
| Tax Residency Certificate application and certificate | Form 42 (application) and Form 43 (certificate) (Rule 75(3) and (4)) |
| Rule 128 and Form 67 (foreign tax credit) | Rule 76 and Form 44 |
A resident of India who needs a certificate of residence applies in Form 42 to the Assessing Officer, who on being satisfied issues it in Form 43 (Rule 75(3) and (4)).
A resident is allowed credit for foreign tax paid, by deduction or otherwise, in a country or specified territory outside India, in the tax year in which the corresponding income is offered or assessed to tax in India (Rule 76(1)). If the income is offered in more than one year, credit is spread in the same proportion (Rule 76(2)).
Example. A resident individual earns ₹10,00,000 of foreign income from one country, on which ₹1,50,000 tax was paid there. The Indian tax on that income (at the average rate on total income) is ₹2,00,000, and the treaty allows a maximum of ₹1,20,000. The foreign tax above the treaty limit, ₹30,000, is ignored, so the foreign tax counted is ₹1,20,000, which is lower than ₹2,00,000. The credit is ₹1,20,000 and the Indian tax payable on that income is ₹80,000.
A resident who has paid income-tax in a country with which there is no agreement under section 159, on income that accrued or arose outside India and is not deemed to accrue or arise in India, is entitled to a deduction from the Indian tax of a sum on the doubly taxed income at the Indian rate or the foreign rate, whichever is lower (the Indian rate if both are equal) (section 160(1)). The same applies to a non-resident taxed on a share in a registered firm that is resident in India (section 160(2)). The foreign credit rules of Rule 76 apply to credit under section 160 as well.
We prepare Form 44 and the foreign tax documents, advise on treaty rates, residence certificates and Form 41, and file returns with foreign income. Please reach out to our team and we will be happy to assist.
The Act applies to an assessee to whom an agreement applies only to the extent it is more beneficial (section 159(4)). The provisions of Chapter XI (the general anti-avoidance rules) apply even if they are not beneficial (section 159(6)). A non-resident can claim treaty relief only if it holds a certificate of residence from the government of its country and provides the other prescribed documents and information (section 159(8)).
Form 41, under Rule 75(1): the documents and information to be provided by a non-resident assessee claiming double taxation relief under an agreement. The assessee must keep the supporting documents, and the tax authority can call for them to verify the claim (Rule 75(2)).
By applying to the Assessing Officer in Form 42, who issues the certificate of residence in Form 43 (Rule 75(3) and (4)).
For each source of income in each country, the credit is the lower of the Indian tax payable on that income and the foreign tax paid on it, and any foreign tax above what the treaty allows is ignored. The foreign tax is converted at the telegraphic transfer buying rate on the last day of the month before the month in which it was paid or deducted. Credit is against tax, surcharge and cess but not interest, fee or penalty (Rule 76(4) and (7)).
A statement in Form 44 (income from outside India offered to tax and the foreign tax on it, verified as the Form says) and a certificate or statement of the nature of the income and the tax, from the foreign tax authority, the deductor or signed by the assessee, with proof of payment or deduction. Both are to be furnished within twelve months from the end of the tax year in which the income is offered to tax or assessed in India, and the return for the year must be furnished within the time in section 263(1) or (4) (Rule 76(10) to (12)).
No credit is given for the disputed part (Rule 76(5)). If the dispute is settled and tax is paid, the credit is allowed for the year the income was offered to tax, if evidence and an undertaking that no refund has been or will be claimed are furnished within six months from the end of the month in which the dispute is finally settled (Rule 76(6)).
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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