Most of the new Income Tax Act, 2025 is a new wrapper on old stuff. These are the changes that matter for Indian Freelancers and Full Time Contractors
TL;DR
- Form 44 replaces Form 67 for claiming Foreign Tax Credit.
- Form 44 must be filed within 12 months from the end of the relevant tax year and your ITR must be filed within the time limit.
- CA verification is required if foreign tax paid is ₹1,00,000 or more.
- Form 45 is introduced for disputed foreign tax cases.
- You must report foreign tax refunds in more situations.
- If you claim Foreign Tax Credit or hold foreign assets or have signing authority in a foreign account, ITR-4 does not apply.
The Government has released the Draft Income-tax Rules, 2026, new income tax forms and new reporting formats.
These are draft rules and the Government has invited public comments. The final rules will be announced after feedback. Until the final notification is issued, these rules are not applicable BUT there is no reason to believe that they will not apply from next year.
1. Biggest Change: Foreign Tax Credit Moves to Form 44
If a foreign country deducts tax from your income, you claim credit for the Foreign Taxes in India.
The core rule does not change. If you are a resident, you get credit for foreign tax paid on income that is also taxed in India. The credit is limited to the lower of:
- Indian tax on that income
- Foreign tax paid on that income
This part stays the same.
But, the form has changed. Earlier you filed Form 67. Now the draft rules replace it with Form 44.
2. Form 44 is More Detailed Than Form 67
Form 44 is not a simple declaration. It is a structured reporting form.
For each country and each type of income, you must report:
- Country name
- Your tax identification number in that country
- Type of income (salary, business, capital gains, interest, dividend, etc.)
- Income from outside India
- Foreign tax paid
- Indian tax payable on that same income
- DTAA article number
- DTAA tax rate
- Whether any tax is under dispute
- Total credit claimed
If you are a freelancer, one point is important.
Form 44 requires you to report net income, not gross income. Net income means gross income minus direct expenses and proportionate indirect expenses linked to that income.
If you invoice a US client for ₹50 lakh and you have ₹10 lakh expenses linked to that work, your income for reporting is ₹40 lakh.
You must be ready with proper working.
3. Filing Deadline for the FTC Form Changes
Under the old system, Form 67 had to be filed within strict return deadlines.
Under the draft rules, Form 44 must be filed within 12 months of the end of the relevant tax year, provided the return is filed within the required time limit.
This prevents FTC rejection due to late filing of the FTC form when you file Form 44 within the 12-month window and file the ITR within the time limit stated in the rule.
4. CA Verification Becomes Mandatory in Many Cases
This is the most important change for remote workers.
Form 44 must be verified by a Chartered Accountant in these cases:
- You are a company or
- Your foreign tax paid in the year is ₹1,00,000 or more
There is a separate verification block in the form for the accountant. It requires a membership number and firm details.
For example, Ankit worked for a US employer before returning to India mid year. US tax withholding in the year is ₹2,50,000.
Assuming Ankit is a tax resident, under the draft rules, he will have to get his foreign tax credit form (Form 44) certified by a CA.
This increases tax management costs.
5. New Form 45 for Disputed Foreign Tax
If foreign tax is under dispute, you cannot claim credit for it.
Once the dispute is settled and you pay the final tax, you must file Form 45 along with evidence of settlement and proof of payment.
If Form 44 required CA verification for that year, Form 45 will also require CA verification.
This is a new reporting layer.
6. Additional reporting for Foreign tax credit refund
If a foreign country later refunds tax for which you already claimed credit in India, you must report it.
The draft rule expands the trigger. It covers refund due to:
- Carry backward of loss
- Revision of return
- Similar adjustment
- Any other reason
Form 44 has a separate section to report this.
7. Return Form Changes: ITR-4 Trap for Freelancers
Remote freelancers file either:
- ITR-3 (normal business income), or
- ITR-4 (presumptive taxation)
The draft rules change eligibility conditions.
ITR-4 now allows long-term capital gains up to ₹1,25,000. This helps freelancers who sell small equity holdings.
Remember:
- If you claim Foreign Tax Credit or have foreign assets, ITR-4 does not apply.
- If you have signing authority in a foreign bank account, ITR-4 does not apply.
A lot of Remote IT professionals have:
- foreign brokerage accounts for RSUs or shares
- foreign bank accounts
- foreign stock earnings
If any of these apply to you, ITR-4 is the incorrect choice.
What You Should Do Now
- Identify whether foreign tax is deducted from your income.
- Track total foreign tax paid during the year.
- If it is ₹1,00,000 or more, plan for CA verification.
- Maintain expense records if you are a freelancer. Form 44 requires net income reporting.
- Review your return form eligibility if you hold foreign assets.