The ASSOCHAM has made a presentation to the Central Board of Direct Taxes (CBDT) suggesting changes in the proposed Foreign Tax Credit rules to ensure the Indian tax payer is subjected to double tax incidence on income.
The chamber has said difference in accounting practices followed by different countries would lead to a double taxation on the income of an Indian taxpayer.
A high level delegation led by Chairman of the ASSOCHAM National Council on Direct Taxes Mr Rajesh Garg, recently called on the CBDT Member Mrs Rani Singh Nair and had detailed discussion on the issue threadbare.
As per the draft Rules, Foreign Tax Credit (FTC) is allowed to the extent of the Indian tax. Enumerating its concerns the ASSOCHAM delegation pointed out that it may be possible that in the initial years, FTC exceeds the amount of Indian taxes, whereas in the subsequent years, the Indian taxes exceed FTC, Assocham said.
"In such a scenario, where, in the initial 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," it said.
In addition there may be difference in accounting mechanism followed by different countries. For instance, source country may follow cash basis accounting, whereas, India follows accrual basis, added
Accordingly, in India, foreign income may be subject to tax in Year 1, whereas such income may be taxable in the source country in Year 4.
"In order to address this use, 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".