India: Taxpayer allowed foreign tax credits on income not taxable under Japan treaty (tribunal decision)
Recent direct and indirect tax developments in India
The Delhi Tribunal held (ITA No. 585/DEL/2021) that the taxpayer, an Indian company that earned income from selling software in Japan, was entitled to claim foreign tax credits (FTCs) for taxes withheld at source in Japan even though the taxpayer’s related income was exempt in India under the India-Japan income tax treaty and, because of losses from other business activities in India, the taxpayer actually had no tax liability in India against which to claim the FTCs.
The tribunal rejected the tax authority’s argument that granting FTCs when no Indian tax liability exists would lead to double non-taxation.
Read a November 2025 report prepared by the KPMG member firm in India, which includes summaries of other indirect and indirect tax developments.