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Can I claim foreign tax credit if I use presumptive tax?

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Editorial team, serviceexportguide.com
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Editorial team
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Short answer

Yes. Rule 76 of the Income-tax Rules, 2026 allows a resident credit for foreign tax in the year the income is offered to tax in India, and it does not exclude income computed under section 58.12 The credit is the lower of the Indian tax on that income and the foreign tax, so a 50% deemed profit lowers the cap, and any foreign tax above the treaty rate is ignored.1 For tax year 2026-27 the claim is made in Form No. 44 within twelve months of the end of the tax year, with the return filed on time.1

A structural engineer in Pune on the presumptive scheme finds that a client in another country deducted tax from an invoice. The question is whether the 50% scheme blocks a credit. It does not, but it changes the size of the credit.12

Does rule 76 exclude presumptive income?

No. Rule 76(1) allows a resident credit for foreign tax paid "by way of deduction or otherwise" in the tax year in which the corresponding income is offered to tax or assessed in India.1 Nothing in rule 76 limits this to income computed from books. Income declared under section 58(2), Table row 3 (the old 44ADA) is offered to tax as profits and gains of business or profession, so the rule applies.12

How does the 50% deemed profit affect the credit?

Rule 76(7) computes the credit separately for each source and country, as the lower of the tax payable under the Act on that income and the foreign tax paid on it, ignoring foreign tax above the treaty rate.1

Example. The engineer bills ₹10,00,000 and the client withholds ₹1,00,000, assumed to be within the treaty rate. Under row 3 only ₹5,00,000 is taxed in India.2 If the Indian tax attributable to that ₹5,00,000 is, say, ₹60,000 (an illustrative figure), the credit is ₹60,000, and the other ₹40,000 is not credited in India.1 Because foreign tax reached ₹1,00,000, Form 44 needs accountant verification.1

So a freelancer whose foreign tax is high relative to Indian tax may find the presumptive scheme leaves part of the foreign tax unused. In that case, ask a chartered accountant (CA) whether declaring actual profit, with books and possibly an audit under section 58(3), changes the overall result.2

What must I file?

For tax year 2026-27, rule 76 requires:1

  1. A statement in Form No. 44 of the foreign income and tax.1
  2. A certificate or statement of the income and tax from the foreign tax authority, the person who deducted the tax, or yourself, backed by proof of deduction.
  3. Filing within twelve months from the end of the tax year, 31 March 2028 for tax year 2026-27, with the return filed under section 263(1) or (4).1

Credit is set against tax, surcharge and cess, not interest or penalties.1 Where the country has no treaty with India, section 160 gives relief at the lower of the Indian and foreign rates instead.3

The filing steps are in foreign tax credit with Form 67 and Form 44, and the reasons clients withhold in foreign withholding tax.

How did we verify this?

We checked this page against the sources below on 28 October 2026. Read our methodology or report an error.

  1. [1]Income-tax Rules, 2026, rule 76 (Foreign tax credit) (Income Tax Department)
  2. [2]Income-tax Act, 2025, section 58 (Income Tax Department section page)
  3. [3]Income-tax Act, 2025, section 160 (countries with which no agreement exists) (Income Tax Department section page)

Frequently asked questions

Is the gross fee or the deemed 50% the income for the credit?+

Rule 76 compares the foreign tax with the tax payable under the Act on that income. Under the presumptive scheme the taxable income is the deemed profit, so the cap is the Indian tax on that deemed amount. Confirm the computation with a CA.12

Can unused foreign tax be carried forward?+

Rule 76 has no carry-forward. Credit is given in the year the income is offered to tax, spread only where that income is taxed over more than one year.1

Do I need a CA to verify Form 44?+

Only if foreign tax paid for the tax year is ₹1,00,000 or more, or if you are a company.1

What if the client's country has no tax treaty with India?+

Section 160 gives a deduction on the doubly taxed income at the Indian rate or the foreign rate, whichever is lower.3

This page is general information for Indian service exporters, not tax or legal advice. Rules change and outcomes depend on your facts, so confirm with a chartered accountant before acting.

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