Foreign Tax Credit Rules for Banks With Overseas Branch

Banks with overseas branches face significant international tax compliance obligations. The Direct Tax Code (DTC) 2025 provides for foreign tax credit (FTC) under Rule 76, allowing banks to claim credit for foreign taxes paid on income earned through overseas branches. This guide analyses the foreign tax credit rules and their application to banks with overseas branch income.

The Foreign Tax Credit Framework

Rule 76(1) — Eligibility

Rule 76(1) provides that "An assessee, being a resident shall be allowed a credit for the amount of any foreign tax paid by him in a country or specified territory outside India, by way of deduction or otherwise, in the tax year in which the income corresponding to such tax has been offered to tax or assessed to tax in India."

Rule 76(2) — Proportionate Credit

"In a case, where income on which foreign tax has been paid or deducted, is offered to tax in more than one tax year, credit of foreign tax shall be allowed across those tax years in the same proportion in which the income is offered to tax or assessed to tax in India."

Rule 76(7) — Credit Calculation

The credit of foreign tax shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country, and shall be given effect to in the following manner:

The credit shall be the lower of the tax payable under the DTC on such income and the foreign tax paid on such income
Where the foreign tax paid exceeds the amount of tax payable in accordance with the provisions of the agreement, such excess shall be ignored

Rule 76(8) — MAT/AMT Credit

"In a case where any tax is payable under the provisions of section 206, the credit of foreign tax shall be allowed against such tax in the same manner as is allowable against any tax payable under the provisions of the Act other than the provisions of the said sections."

Application to Banks With Overseas Branches

Overseas Branch Income

Banks with overseas branches earn income from:

Interest income
Fee income
Trading income
Other banking income

Foreign Tax Paid

Foreign tax may be paid on overseas branch income through:

Withholding tax on interest and other income
Corporate income tax on branch profits
Other taxes

Tax Treaty Benefits

Where a Double Taxation Avoidance Agreement (DTAA) applies, the bank may claim treaty benefits, including:

Reduced withholding tax rates
Exemption from certain taxes
Foreign tax credit

Documentation Requirements

Rule 76(10) — Documents

Credit of any foreign tax shall be allowed on furnishing:

Form No. 44: A statement of income from the country outside India offered for tax for the tax year and of foreign tax deducted or paid on such income
Certificate or Statement: Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee, from:
- The tax authority of the country outside India; or
- The person responsible for deduction of such tax; or
- Signed by the assessee

Rule 76(11) — Supporting Documents

The certificate or statement furnished shall be valid if accompanied by:

An acknowledgement of online payment or bank counter foil or challan for payment of tax where the payment has been made by the assessee
Proof of deduction, where the tax has been deducted

Rule 76(12) — Timeline

The statement in Form No. 44 and the certificate or the statement shall be furnished within twelve months from the end of the relevant tax year in which the income has been offered to tax or assessed to tax in India.

Rule 76(16) — Verification by Accountant

Form No. 44 shall be verified by an accountant defined in section 515(3)(b):

Where the assessee is a company
In all other cases, where the amount of foreign tax paid outside India for a tax year equals or exceeds ₹1,00,000

Practical Compliance for Banks

1. Identify Foreign Income

Identify all income earned through overseas branches
Determine the nature and source of the income
Determine the foreign tax paid on the income

2. Determine Eligibility

Determine whether the bank is a resident of India
Determine whether the foreign tax is eligible for credit
Determine the amount of foreign tax eligible for credit

3. Compute the Credit

Compute the Indian tax payable on the income
Compute the foreign tax paid on the income
The credit is the lower of the two

4. Complete Form No. 44

Provide all required information
Include details of the foreign tax paid
Attach the certificate or statement of foreign tax paid
Get the form verified by an accountant (if applicable)

5. File the Return

File the return within the prescribed time
Claim the foreign tax credit in the return
Attach Form No. 44 and supporting documents

6. Maintain Records

Maintain copies of all documents
Retain documents for the prescribed period

Consequences of Non-Compliance

Disallowance of Credit

If the documentation is not provided or the conditions are not fulfilled:

The foreign tax credit may be disallowed
Income may be recomputed
Interest and penalty may be levied

Penalty

Non-compliance may result in penalty under Section 439 for under-reporting of income.

Expert Legal Guidance

Anuj Desai & Associates provides comprehensive legal advisory services on foreign tax credit for banks with overseas branch income. Our international tax experts help banks understand the FTC framework, complete Form No. 44, and navigate the regulatory framework. We assist in documentation preparation, return filing, and representation before income-tax authorities.

Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on foreign tax credit or any other international tax matter, please consult qualified legal professionals.

Need Expert Legal Guidance?

Navigating the complex foreign tax credit framework for banks with overseas branch income requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive international tax advisory services, including:

FTC Assessment: Evaluation of foreign tax credit eligibility
Documentation: Assistance with Form No. 44 and supporting documents
Return Filing: Assistance with claiming FTC in returns
Representation: Representation before income-tax authorities

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Foreign Tax Credit Rules for Banks With Overseas Branch Income