The Delhi Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling, affirming that salary earned in Australia for services rendered there is not taxable in India under the existing Double Taxation Avoidance Agreement (DTAA) between the two countries. This decision brings clarity and relief to taxpayers who might inadvertently declare such foreign income in their Indian Income Tax Returns (ITR).
Mistaken Declaration and ITAT's Stance
The case involved a Delhi-based taxpayer, Mr. Gupta, who worked in Australia throughout the relevant financial year, earning a salary of ₹14.16 lakh from an Australian employer. Under Article 15 of the India-Australia DTAA, this income was taxable exclusively in Australia, where he had performed all his employment duties. Consequently, ₹3.40 lakh had already been deducted as tax in Australia.
However, while filing his ITR for Assessment Year 2020-21, Mr. Gupta mistakenly included his Australian salary in his taxable income in India. Upon realizing the error, he filed Form 67 to claim a Foreign Tax Credit (FTC) and sought rectification under Section 154 of the Income Tax Act, requesting the exclusion of the Australian salary from his Indian taxable income.
Rectification Denied, Tribunal Intervenes
Mr. Gupta's rectification request was initially rejected by the Centralised Processing Centre (CPC), Bengaluru. Challenging this decision, he escalated the matter to the Commissioner of Income Tax (Appeals) and subsequently to the Delhi ITAT.
Represented by Chartered Accountants Vinod Bindal and Rinky Sharma, and Advocate Amol Jha, Mr. Gupta argued that Article 15 of the India-Australia DTAA explicitly states that salary is taxable only in the country where the employment is exercised. Since all services were rendered in Australia, India had no right to tax this income.
The ITAT's Final Ruling
In its order dated June 30, 2026, the Delhi ITAT sided with the taxpayer. It directed the Assessing Officer to exclude the Australian salary from Mr. Gupta's total income, unequivocally stating that the salary received in Australia for services rendered there "is not taxable at all in India in view of Article 15 of India-Australia DTAA."
However, the Tribunal also clarified a crucial point: since the salary itself is not taxable in India, Mr. Gupta would not be entitled to claim the Foreign Tax Credit of ₹3,40,428. This is because there is no Indian tax liability against which the foreign tax paid could be adjusted.
Evolving Foreign Tax Credit Rules
Tax experts highlight that the rules for claiming Foreign Tax Credit have become more taxpayer-friendly in recent years. Mihir Tanna, Associate Director at S.K. Patodia LLP, noted that the Income Tax Department amended rules via Notification No. 100/2022. This amendment allows taxpayers to submit Form 67 up to the end of the relevant assessment year from FY 2022-23 onwards, a significant extension from the previous requirement of filing on or before the original ITR due date. Judicial rulings have also reinforced that the timeline for filing Form 67 is directory, not mandatory, offering greater flexibility to taxpayers.