What kind of income a taxpayer cant claime the foreign tax credit on?
• The foreign tax credit is a non-refundable tax credit for income taxes paid to a foreign government as a result of foreign income tax withholdings. The foreign tax credit is available to anyone who either works in a foreign country or has investment income from a foreign source.
• Some people live on more than one patch of soil, residing in different countries at different points during the year. If you're one of them, you know this complicates your tax situation, but here's a bit of good news. You might be eligible for the foreign tax credit. When an American pays income tax to a foreign government, that tax can be claimed as a credit against his U.S. federal income tax.
• The purpose of the foreign tax credit is to reduce the impact of having the same income taxed by both the United States and by the foreign country where the income was earned.
• Not all taxes paid to a foreign government are eligible for the foreign tax credit. Ask yourself the following questions to find out if you qualify.
Is the tax imposed on you? Did you pay or accrue the tax? Is the tax a legal and actual foreign tax liability? Is the tax an income tax or a tax in lieu of an income tax?
-->> If you can answer yes to all of these four questions, those taxes can be included in your calculation of the foreign tax credit. Otherwise, you don't qualify.
• A tax credit is applied to the amount of tax owed by the taxpayer after all deductions are made from his or her taxable income, and it reduces the total tax bill of an individual dollar to dollar.
-->> Form 67, as mentioned above, is a crucial document that has to be furnished in order to claim Foreign tax credit by a taxpayer. It is also essential that it be furnished on or before the due date of filing return of income under section 139(1) i.e. the original return of income.
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