Re: “Comments on draft rules for granting Foreign Tax Credit”

This letter to the Indian Ministry of Finance critically reviews the proposed rules for the grant of credit in India for taxes paid in a foreign country (Draft Rules). It points out what is perhaps the most egregious drawback in the Draft Rules - they do not consider the erosive impact foreign losses which could, in conjunction with the proposed mechanism of relief from double taxation, have on India’s domestic tax base. It further demonstrates that such a framework would be tantamount to financing private enterprise and foreign treasuries at the expense of the Indian treasury, which cannot be justified as a policy.The letter also points out that the Draft Rules do not provide for any clarity in respect of excess foreign tax credits that taxpayers may accumulate in cases where their foreign sourced income may exceed their worldwide income due to losses incurred in operations carried on in India