Form 67 & FTC Under New Tax Code 2025: A Guide for Tech Employees

Key Takeaways

• Shift in Compliance Deadline: The Direct Tax Code (DTC) 2025 proposes to permanently extend the deadline for filing Form 67 to the end of the assessment year, providing significant relief from the previously rigid timeline under the Income Tax Act, 1961.
• Mandatory Digital Trail: Claiming Foreign Tax Credit (FTC) now requires a robust digital paper trail. This includes uploading proof of foreign tax payment and the corresponding foreign tax return/statement directly onto the e-filing portal when submitting Form 67.
• Enhanced Scrutiny of Foreign Assets: There is a stronger link between Form 67 and Schedule FA (Foreign Assets). The tax authorities' systems are increasingly cross-referencing FTC claims with the foreign assets declared, making accurate and complete disclosure in Schedule FA more critical than ever for tech employees with RSUs and ESOPs.
• No Credit Without Filing: Filing Form 67 is a mandatory prerequisite for claiming FTC. Failure to file this form can lead to a complete denial of the credit, resulting in double taxation on the same income.

PART 1: EXECUTIVE SUMMARY

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This guide provides a comprehensive analysis of the transition from the Income Tax Act, 1961, to the new Direct Tax Code, 2025, focusing on the critical process of claiming Foreign Tax Credit (FTC) for global tech employees.

• The Old Law (1961): Under the Income Tax Act, 1961, and the corresponding Rule 128, claiming FTC was a procedurally stringent task. Taxpayers were required to file Form 67 on or before the due date for filing their Income Tax Return (ITR). This created significant practical difficulties, especially when proof of foreign tax payment was delayed due to differing tax year closures in other countries.

• The New Law (2025): The Direct Tax Code, 2025, which replaces the 1961 Act, aims to simplify and streamline this process. A significant procedural relaxation is the extension of the deadline for filing Form 67, which can now be furnished on or before the end of the relevant assessment year. This change provides taxpayers much-needed flexibility to gather the necessary documentation from foreign jurisdictions without risking the disallowance of the credit.

• Who is Impacted: This transition primarily impacts Indian residents with global income streams. It is especially relevant for employees in the technology sector who receive compensation in the form of Restricted Stock Units (RSUs), Employee Stock Option Plans (ESOPs), and other forms of remuneration from foreign parent companies, leading to tax liabilities in multiple countries.

PART 2: DETAILED TAX ANALYSIS

1. The Challenge for Global Tech Employees

Global tech employees, particularly those with RSUs and ESOPs from multinational corporations, face a unique and complex set of tax challenges. The core issue is the potential for double taxation, where the same income is taxed both in the country of source (e.g., the U.S., where the parent company is listed) and in India (the country of residence). While the mechanism to prevent this is the Foreign Tax Credit (FTC), its practical application is fraught with difficulties.

Key challenges include:

• Timing Mismatches: India's financial year runs from April to March, whereas many countries, including the United States, follow a calendar year. This creates a significant timing difference, often making it impossible to obtain finalized proof of taxes paid abroad before the Indian ITR filing deadline.
• Documentation Burden: Claiming FTC requires submitting specific proof, such as foreign tax payment challans, returns, or statements. Procuring these documents from foreign tax authorities or employers can be a time-consuming process.
• Currency Fluctuation: The conversion of foreign income and foreign taxes paid into Indian Rupees must be done at prescribed exchange rates. Fluctuations can impact the final credit amount and require careful calculation to ensure accuracy.
• TDS Mismatch and Cash Flow Impact: Employers in India often do not have a mechanism to consider the FTC while calculating monthly Tax Deducted at Source (TDS). This results in higher TDS deductions from salary, leading to a reduced take-home pay and significant cash flow issues for the employee, who must then wait for a refund after filing their ITR.

The Direct Tax Code 2025 attempts to address some of these procedural hurdles, primarily by extending the compliance deadline for Form 67.

2. Statutory Changes: 1961 Act vs 2025 Act

The fundamental principles of FTC, governed by Sections 90, 90A, and 91 of the Income Tax Act, are carried forward into the Direct Tax Code 2025. However, the procedural rules have been rationalized. The most significant change is within the rules governing the filing of Form 67.

3. Schedule FA & Foreign Asset Reporting

For global tech employees, compliance extends beyond just claiming FTC. Schedule FA (Foreign Assets) of the ITR is a mandatory disclosure for all residents who hold any foreign assets. This includes vested RSUs held in a foreign brokerage account, even if they have not yet been sold.

Key Compliance Points:

• Asset-Based, Not Income-Based: Disclosure in Schedule FA is required regardless of whether any income was earned from the asset during the year. Vested RSUs sitting in an E*TRADE, Morgan Stanley, or other brokerage account must be reported.
• Annual Reporting: Vested shares must be reported every year from the date of vesting until they are sold or transferred.
• Penalties for Non-Disclosure: Failure to report foreign assets can attract severe penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, including a flat penalty of ₹10 lakh.

Under the new DTC 2025 regime, the tax department's data analytics capabilities are significantly enhanced. The system will increasingly cross-verify the foreign income on which FTC is claimed in Form 67 with the assets disclosed in Schedule FA. Any discrepancy, such as claiming a tax credit on dividends from foreign shares that were not disclosed in Schedule FA, will trigger automated notices and scrutiny.

4. Scenario Analysis

Let's consider a practical scenario for a tech employee for the Financial Year 2025-26 (Assessment Year 2026-27).

Case:

• Taxpayer: Anjali, a resident Indian software engineer at a US-based tech company's Indian subsidiary.
• Income Event: In May 2025, Anjali vests 100 RSUs of her US parent company. The Fair Market Value (FMV) at vesting is $200 per share, resulting in a perquisite value of $20,000.
• Tax in the US: The US company withholds 25% tax on this perquisite, amounting to $5,000.
• Tax in India: The $20,000 is added to Anjali's salary income in India and taxed at her applicable slab rate (say, 30% plus cess).
• Objective: Anjali needs to claim a credit for the $5,000 tax already paid in the US to avoid paying tax on the same $20,000 again in India.

Compliance Steps under Direct Tax Code 2025:

1. Calculate Perquisite Value: The Indian employer will calculate the perquisite value in INR and include it in Anjali's Form 16, deducting TDS on it.
2. Gather Documents: Anjali must obtain a statement from her US employer or brokerage firm showing the number of RSUs vested, the FMV, and proof of the $5,000 tax paid/withheld.
3. File Form 67:
   • Anjali must log in to the Indian income tax portal and navigate to e-File > Income Tax Forms > Form 67.
   • She will enter details of the foreign income ($20,000 converted to INR), the foreign tax paid ($5,000 converted to INR), the country (USA), and the relevant DTAA article.
   • She must attach the digital copy of the proof of tax payment.
4. Crucial Deadline: Under the new law, Anjali can file Form 67 anytime up to March 31, 2027. This is a significant advantage if her US tax documents are only finalized in early 2027.
5. File Income Tax Return (ITR):
   • Anjali files her ITR-2 by the due date (e.g., July 31, 2026).
   • In her ITR, she will report the RSU perquisite as salary income.
   • She will fill Schedule TR (Tax Relief) and Schedule FSI (Foreign Source Income), claiming the credit for the $5,000 tax paid. The system will only allow this claim if Form 67 has been filed.
   • In Schedule FA, she must report the holding of the 100 vested shares as a foreign asset (Foreign Equity Interest).

5. Compliance Checklist 2026

For tech employees earning foreign-source income in FY 2025-26, this checklist is essential for compliance under the new Direct Tax Code 2025.

• [ ] Document Collation (Jan - Mar 2026):
  • Request year-end tax statements from your foreign employer/brokerage (e.g., US W-2, Form 1042-S, or equivalent).
  • Collect proofs of foreign tax payments (e.g., withholding statements, challans).
  • Compile statements for all foreign bank accounts and brokerage accounts.
• [ ] Calculate Foreign Tax Credit (By June 2026):
  • Convert all foreign income and taxes paid into INR using the telegraphic transfer buying rate issued by the State Bank of India on the last day of the month preceding the month of tax payment/deduction.
  • Determine the FTC amount, which is the lower of:
    • The actual foreign tax paid.
    • The Indian tax payable on that foreign income.
• [ ] File Form 67 (Before ITR Filing):
  • Log into the income tax portal and fill out Form 67.
  • Attach all required digital proofs.
  • Submit the form using EVC or DSC. It is highly advisable to file this before or along with the ITR, even though the final deadline is March 31, 2027, to ensure smooth processing of the ITR.
• [ ] Disclose in Schedule FA (During ITR Filing):
  • Identify all foreign assets held during the calendar year 2025 (for ITR filed in 2026). This includes vested RSUs, shares, foreign bank accounts, and any other financial interest.
  • Accurately report the details in Schedule FA of your ITR-2 or ITR-3.
• [ ] File Income Tax Return (By July 31, 2026):
  • File the appropriate ITR form (ITR-2 or ITR-3).
  • Ensure the FTC claim in Schedule TR/FSI matches the details provided in Form 67.
  • Verify that the foreign income is correctly reported under the appropriate heads (e.g., Salary, Capital Gains, Other Sources).

💡 Tech Employee Tip: Restructuring your salary or vesting RSUs? Understand the new capital gains rules for 2025.