Investment Tax Credits - A Smart Tax Strategy for NRIs

"I'll get taxed twice on my Indian investments, so why bother?"

This is the most expensive misconception NRIs carry. India has signed Double Taxation Avoidance Agreements (DTAAs) with over 94 countries, and Foreign Tax Credits exist specifically to prevent you from paying tax twice on the same income.

Yet most NRIs don't claim these credits. They either don't know they exist, or they miss the filing deadline.

The Foreign Tax Credit Mechanism Explained

When you earn income in India that's taxable in both India and your country of residence, you're not expected to pay full tax in both places.

The Foreign Tax Credit (FTC) lets you offset taxes paid in one country against your liability in the other. Under Sections 90 and 91 of the Income Tax Act, NRIs can claim relief through two methods.

Exemption Method: Your foreign income is exempt from tax in India if already taxed abroad.

Credit Method: Tax paid in one country counts as credit against tax owed in the other.

Which method applies depends on your specific DTAA. India's treaties with the UAE, UK, US, Singapore, and Canada each have different provisions for different income types.

👉 Tip: The credit is calculated as the lower of: Indian tax on that income OR foreign tax actually paid. You get the smaller amount, not both.

Why UAE-Based NRIs Have a Unique Advantage

If you're in the UAE, you're in a zero personal income tax jurisdiction. This creates a straightforward situation for your Indian investments.

You pay tax in India on Indian-sourced income (interest, dividends, capital gains, rental income). Since you pay nothing in the UAE on this income, there's no double taxation issue to resolve.

But here's what many UAE NRIs miss: you can still benefit from DTAA provisions that reduce TDS rates on certain income types.

For interest income from NRO accounts, TDS is typically 30%. Under the India-UAE DTAA, this can drop to 12.5% if you submit proper documentation.

That's ₹17,500 saved on every ₹1 lakh of interest income.

UK and US NRIs: The Credit Method in Action

For NRIs in taxing jurisdictions, the credit method becomes crucial.

Example for UK NRIs:

You earn ₹5 lakhs from Indian mutual fund capital gains. India taxes this at 12.5% (₹62,500). The UK also taxes your worldwide income, including these gains.

Without DTAA relief, you'd pay ₹62,500 to India plus UK tax on the same ₹5 lakhs.

With DTAA relief, you claim the ₹62,500 paid to India as a foreign tax credit against your UK liability. You pay the difference only if UK tax exceeds Indian tax.

Read more about DTAA benefits on capital gains for country-specific details.

Example for US NRIs:

The process is similar, but you'll use IRS Form 1116 to claim foreign tax credit in the US for taxes paid in India. The India-US DTAA allows capital gains from Indian mutual funds to be taxed in India, with credit available in the US.

👉 Tip: US NRIs can choose between claiming FTC as a credit (Form 1116) or as a deduction. Credits are almost always more valuable since they reduce tax rupee-for-rupee.

Form 67: The Document Most NRIs Forget

Here's where most claims fall apart.

To claim Foreign Tax Credit in India, you must file Form 67 through the Income Tax e-filing portal. This isn't optional. No Form 67, no credit. (Source: Income Tax Department)

Critical deadlines:

Form 67 must be filed on or before the due date of your Income Tax Return (typically July 31st, sometimes extended). For AY 2025-26, the extended deadline was September 15, 2025.

Filing Form 67 late results in automatic denial of your FTC claim.

Documents needed:

The process: Log into the Income Tax portal → Navigate to e-File → Income Tax Forms → Select Form 67 → Fill details → Submit and e-verify.

What Most Blogs Won't Tell You About FTC Calculations

The calculation seems simple: take the lower of Indian tax or foreign tax paid.

But there are nuances that can cost you money.

Currency conversion matters. Convert foreign tax to INR using the Telegraphic Transfer Buying Rate (TTBR) on the last day of the month preceding payment. Using wrong rates can distort your credit calculation.

Source-wise calculation is mandatory. You can't pool all foreign income together. Calculate FTC separately for each income source from each country. Salary, interest, dividends, and capital gains each need separate computation.

Disputed tax doesn't qualify. If you're contesting a foreign tax assessment, you can't claim credit until the dispute settles. You have six months after settlement to furnish evidence and claim credit.

MAT credit interplay. Foreign tax credit is available even against Minimum Alternate Tax (MAT) under Section 115JB, but the calculation methodology differs.

The Section 80C Trap for NRIs

Many NRIs confuse tax credits with tax deductions. They're different mechanisms.

Tax credits directly reduce your tax bill. Tax deductions reduce your taxable income.

For tax-saving investments, NRIs can claim deductions under Section 80C, but with restrictions:

The maximum deduction is ₹1.5 lakhs under Section 80C. But this doesn't eliminate tax, it only reduces taxable income by that amount.

👉 Tip: If you're in the 30% bracket, ₹1.5 lakhs in 80C deductions saves you ₹45,000 in tax. An FTC of ₹45,000 saves you the same amount. Combine both strategies for maximum benefit.

Tax-Free Alternatives: When Credits Aren't Enough

Sometimes the smartest tax strategy is avoiding taxable income altogether.

GIFT City investments offer NRIs a legitimate way to earn returns without Indian tax complications.

GIFT City USD Fixed Deposits: Interest earned is tax-free for NRIs under current IFSCA regulations. No TDS, no ITR reporting of this income in India, no need for FTC claims.

Compare your options using the NRI FD rates tool.

GIFT City Mutual Funds: Capital gains from GIFT City mutual funds enjoy favorable tax treatment. For NRIs, gains are taxable only in your country of residence. UAE residents pay zero tax since the UAE has no capital gains tax.

Explore options through our mutual fund platform.

GIFT City AIFs: For larger portfolios, alternative investment funds in GIFT City provide sophisticated exposure with similar tax advantages.

Track market movements with the Gift Nifty tool.

Common Mistakes That Cost NRIs Money

After advising NRIs for over a decade, these errors appear repeatedly:

1. Not filing Form 67 at all. Many NRIs file their ITR but skip Form 67, losing legitimate credits worth lakhs.

2. Filing Form 67 after ITR. The sequence matters. Form 67 must be filed before or along with your ITR, never after.

3. Missing TRC submission. Without a Tax Residency Certificate from your country of residence, DTAA benefits can be denied.

4. Ignoring lower TDS options. NRIs can apply for Lower Deduction Certificates (Form 13) to reduce TDS at source rather than claiming refunds later.

5. Not claiming credits in both countries. The FTC mechanism works both ways. Claim credit in India for foreign taxes paid (Form 67), and claim credit abroad for Indian taxes paid (country-specific forms).

For comprehensive guidance on filing your NRI taxes, read our detailed guide.

Action Steps: Claiming Your Investment Tax Credits

If you have Indian investments and live abroad, here's your checklist:

Before March 31 (end of financial year):

• Gather all income statements from Indian sources
• Calculate estimated Indian tax liability
• Consider timing of asset sales for capital gains optimization

Before ITR due date:

• Obtain Tax Residency Certificate from your country
• Collect foreign tax payment proofs
• File Form 67 through the Income Tax portal
• File ITR with Schedule FSI (Foreign Source Income) and Schedule TR (Tax Relief)

After filing:

• Verify Form 26AS for TDS credits
• Track refund status if applicable
• Maintain documents for 7 years (assessment period)

The Bottom Line

Investment tax credits aren't complicated. They're just poorly communicated.

If you're paying tax on Indian investments in both India and your country of residence without claiming credits, you're essentially making a voluntary donation to two governments.

File Form 67. Submit your TRC. Claim what's legally yours.

For NRIs who want to simplify this entirely, GIFT City investments through Belong offer tax-efficient alternatives that eliminate the need for complex credit calculations.

Download the Belong app to explore tax-free investment options. Or join our WhatsApp community where thousands of NRIs discuss DTAA claims, Form 67 filing, and tax optimization strategies daily.

Your money. Your credits. Claim them.

Disclaimer: Tax laws change frequently. This article reflects rules as of January 2026. Consult a qualified tax advisor for advice specific to your situation.