Tax

How do Indian service exporters claim credit for tax a foreign client withheld?

Author:: Editorial team, serviceexportguide.com
Verified by:: Editorial team
Published: 28 October 2026
Last modified: 30 October 2026
Reading time: 8 min read

Short answer

Tax a foreign client withheld can be credited against Indian tax on the same income.²⁴ The credit is capped at the Indian tax on that income.²⁴ Income up to 31 March 2026 uses Form 67.³⁴ Income from tax year 2026-27 uses Form 44 under rule 76.²³ Form 44 is due within 12 months of the tax year's end.²

Form	Applies to	Governed by	Deadline	Penalty	Last verified
Form 67	Foreign tax on income of FY 2025-26 and earlier³⁴	Income-tax Rules, 1962, rule 128⁴	End of the assessment year; 31 March 2027 for FY 2025-26⁴	Credit depends on the form and return deadlines being met⁴	28 October 2026
Form 44	Foreign tax on income of tax year 2026-27 onwards²³	Income-tax Rules, 2026, rule 76²	12 months from the end of the tax year; 31 March 2028 for 2026-27²	Credit depends on the form and return deadlines being met²	28 October 2026
Form 45	Foreign tax disputes settled after the claim period²	Income-tax Rules, 2026, rule 76²	Six months from the end of the month the dispute is settled²	Not covered on this page	28 October 2026

Most foreign clients pay Indian freelancers in full. Some do not: a client may withhold tax under its own country's law, a platform may deduct tax because your tax form was missing, or a government or large company may apply a royalty or "technical services" withholding rate. Since India taxes residents on their worldwide income, that same income is taxed again in India. Foreign tax credit (FTC) is the mechanism that stops you paying tax twice.¹²

This guide covers the law as of October 2026. It uses "FY 2025-26" for income earned up to 31 March 2026 (Income-tax Act, 1961) and "tax year 2026-27" for income earned from 1 April 2026 (Income-tax Act, 2025).⁶ The right answer depends on the treaty, the type of income and the documents you hold, so confirm the numbers with a chartered accountant (CA) before filing.

What is foreign tax credit for Indian service exporters?

Foreign tax credit for Indian service exporters is relief that lets tax withheld abroad be set off against Indian tax on the same income, claimed in Form 67 for income earned up to 31 March 2026 and in Form 44 for income earned from 1 April 2026.¹²³⁴

Income earned	Relief under	FTC rule	Form
FY 2025-26 and earlier	Sections 90 and 91, Income-tax Act, 1961	Rule 128, Income-tax Rules, 1962	Form 67
Tax year 2026-27 onwards	Sections 159 and 160, Income-tax Act, 2025	Rule 76, Income-tax Rules, 2026	Form 44 (Form 45 for settled disputes)

Section 159 lets the government sign double taxation avoidance agreements (DTAAs).¹ Section 160 gives relief where India has no treaty with the other country, at the lower of the Indian rate and the foreign rate on the doubly taxed income.¹

Who does foreign tax credit apply to?

Foreign tax credit applies to any Indian resident whose foreign client or platform withheld tax on income that is also taxed in India, with CA verification depending on the claimant and the amount.²

Entity type	Applicable	Why	Best for
Individual, foreign tax under ₹1,00,000	Yes, no CA verification	Rule 76(16) threshold not reached²	Freelancers with occasional withholding
Individual, foreign tax ₹1,00,000 or more	Yes, with CA verification	Rule 76(16) requires accountant verification²	Consultants with large withheld amounts
Company	Yes, always with CA verification	Rule 76(16) applies to every company²	Agencies and IT firms
Presumptive taxpayer	Yes, with a lower cap	Credit is limited to the Indian tax on that income²	Freelancers on the 50% scheme

Whether a client withholds at all depends on its country and on what you sell. Under the India-US treaty, for example:⁷

Business profits (Article 7): taxable only in India unless you have a permanent establishment in the US.⁷
Independent personal services (Article 15): an individual's professional income is taxable only in India, unless you have a fixed base regularly available in the US or you stay there 90 days or more in the year.⁷
Royalties and fees for included services (Article 12): the US may tax these, capped at 15% of the gross amount in most cases (10% for certain equipment-related payments).⁷

Sending the right W-8BEN or W-8BEN-E before the first invoice prevents most US cases. Other countries have their own rules, and a few withhold on services by default. Read the DTAA with that country, or ask the client which rule they are applying.⁷

How do you claim foreign tax credit in India?

You claim foreign tax credit by filing Form 44 (or Form 67 for older income) with proof of the foreign tax, and by filing your return on time.²⁴

Identify the form: Form 67 for income of FY 2025-26 and earlier; Form 44 for tax year 2026-27 onwards.²³⁴
Collect proof: a certificate or statement from the foreign tax authority or the deductor, or your own signed statement backed by proof.²⁴
Offer the gross income to tax: if the gross fee is not in your return, there is nothing to set the credit against.
Compute the credit: per country and per source, at the lower of the two taxes (see the calculation below).²⁴
Get CA verification if required: for a company, or for anyone else where foreign tax is ₹1,00,000 or more.²
File the form and return on time: filing the form before or with your return is the safest habit, and the return's FTC schedule should show the same figures as the form.

Form 67 is filed online only, on the e-Filing portal, and needs an active PAN.⁴⁵

What documents and deadlines apply to foreign tax credit?

Foreign tax credit needs the Form 44 or Form 67 statement and a certificate of the tax deducted, and the form is due within 12 months from the end of the tax year for Form 44.²⁴

Item	Form 67 (FY 2025-26 and earlier)	Form 44 (tax year 2026-27 onwards)
Deadline	End of the relevant assessment year: 31 March 2027 for FY 2025-26 income, if the return is filed under section 139(1) or 139(4)⁴	12 months from the end of the tax year: 31 March 2028 for 2026-27, if the return is filed under section 263(1) or 263(4)²
Updated return	Form filed on or before the date of that return⁴	Form filed on or before the date of that return²
CA verification	No threshold⁴	Company always; others if foreign tax is ₹1,00,000 or more²

Rule 76(10) and (11), like rule 128(8) before it, require these documents:²⁴⁵

Statement: Form 44 (or Form 67), showing the foreign income offered to tax and the foreign tax deducted or paid.²⁵
Certificate: a statement showing the nature of income and the tax, from the foreign tax authority, the person who deducted the tax (for example, a client's US Form 1042-S), or a statement signed by you.²⁴
Proof for a self-signed statement: an online payment acknowledgement, bank counterfoil or challan if you paid the tax, or proof of deduction if it was withheld.²⁴
Supporting records: your invoice, the client contract, the bank credit or FIRA (Foreign Inward Remittance Advice) for the net amount, and the treaty article you rely on. See FIRC vs FIRA vs eBRC.

What happens if you get foreign tax credit wrong?

If you get foreign tax credit wrong, the credit can be refused, because it depends on both the form deadline and the return deadline being met.²⁴ The withheld foreign tax then stays a cost unless recovered abroad.

Late form or return: credit depends on both deadlines.²⁴
Disputed foreign tax: credit is not allowed until the dispute is settled; you then file Form 45 with evidence within six months of the end of the month in which the dispute is settled.²
Later refund abroad: if foreign tax you claimed is refunded, for example after you submit a corrected tax form, rule 76(14) requires Form 44 to be filed again when a carried-back loss, a revised return or any other reason results in a refund of foreign tax already credited.² Keep the refund correspondence with your tax papers.

How is foreign tax credit calculated?

Foreign tax credit is calculated per country and per source as the lower of the Indian tax on that income and the foreign tax paid on it. Rule 76 (and the old rule 128) works the same way:²⁴

Per country, per source: credit is calculated separately for each source of income in each country, then added up.²⁴
Lower of two amounts: the lower of the Indian tax on that income and the foreign tax paid on it.²⁴
Treaty cap: if the foreign country withheld more than the DTAA allows, the excess is ignored. For example, if a client withheld 30% where the treaty caps the rate at 15%, only 15% counts. Claim the excess back from the foreign tax authority.²⁴
Exchange rate: foreign tax is converted at the telegraphic transfer (TT) buying rate on the last day of the month before the month in which the tax was deducted or paid.²⁴
What it offsets: tax, surcharge and cess, but not interest, fees or penalties.²⁴
Timing: credit is given in the year the income is taxed in India; if the income is spread across years, the credit is spread in the same proportion.²⁴

For example, in tax year 2026-27 a Mumbai consultant bills a client in another country ₹10,00,000 and the client withholds ₹1,00,000. If the Indian tax attributable to that income works out to ₹80,000, the credit is ₹80,000 and the remaining ₹20,000 is a cost unless recovered abroad. Because the foreign tax is ₹1,00,000, Form 44 must be verified by a CA.²

What are the common mistakes with foreign tax credit claims?

The common mistakes with foreign tax credit claims are missing proof of deduction, mismatched figures, the wrong exchange rate and claiming tax above the treaty rate.²⁴

No proof of deduction: a client email saying "we withheld 10%" is not enough. Ask for the official withholding statement.²⁴
Income not offered to tax: if the gross fee is not in your return, there is nothing to set the credit against.
Figures do not match: the income and tax in the form, the return schedule and the foreign certificate must match after currency conversion.
Wrong exchange rate: using the payout date rate instead of the TT buying rate on the last day of the previous month.²⁴
Tax above the treaty rate: the excess over the DTAA rate is disallowed.²⁴
Missing CA verification: for Form 44 where foreign tax is ₹1,00,000 or more.²
Claiming taxes that are not income tax: such as sales tax or platform fees. Only tax covered by the DTAA, or income tax in a non-treaty country, qualifies.²⁴

A US client paying a designer in India for work done in India usually has no reason to withhold, so check the client's tax form before you accept a deduction.⁷

How did we verify this?

We checked this page against the sources below on 30 October 2026. Read our methodology or report an error.

Frequently asked questions

Is Form 67 replaced by Form 44?+

For income earned from 1 April 2026 (tax year 2026-27 onwards), Form 67 is replaced: rule 76 of the Income-tax Rules, 2026 prescribes Form No. 44.²³ Form 67 under rule 128 of the Income-tax Rules, 1962 still applies to foreign tax on income of FY 2025-26 and earlier years.⁴ Use the form that matches the income year.

Do I need a CA to certify Form 44?+

Individuals need Form 44 verified by an accountant only if foreign tax paid for the tax year is ₹1,00,000 or more, under rule 76(16) of the Income-tax Rules, 2026. Companies always need Form 44 verified.² Form 67 under the old rule 128 had no such threshold, so this is a new step for larger claims.⁴

Can I get a refund of foreign tax that is more than my Indian tax?+

Foreign tax that is more than the Indian tax is not refunded in India. The foreign tax credit is the lower of the Indian tax on that income and the foreign tax paid on it.²⁴ To recover the excess foreign tax, you would have to approach the foreign tax authority under its own refund process.

Can I claim credit if I file my return late?+

Rule 76 allows Form 44 within 12 months of the end of the tax year only where the return is filed within the due date under section 263(1) or the belated return period under section 263(4). For an updated return, Form 44 must be filed on or before the date of that return.²

My client withheld tax but I am on the presumptive scheme. Can I still claim credit?+

The foreign tax credit rules do not exclude presumptive income. Credit is limited to the Indian tax on that income, so a lower deemed profit under the presumptive scheme means a lower cap on the credit you can claim.² Confirm the computation and the attribution of Indian tax with your chartered accountant before filing.

Which exchange rate converts the foreign tax for Form 44?+

Foreign tax for Form 44 or Form 67 is converted at the telegraphic transfer (TT) buying rate on the last day of the month before the month in which the tax was deducted or paid.²⁴ Using the payout date rate instead is a common reason the figures in the form and the return do not match.

Does a US client usually withhold tax from an Indian freelancer?+

A US client paying an Indian freelancer for work done in India usually has no reason to withhold under the India-US treaty, since business profits and independent personal services are generally taxable only in India.⁷ Withholding most often happens when the client or platform has no valid tax form on file.

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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