Tax Credit Limit

Tax Credit Limit

Tax credit is allowed up to the amount of tax paid in foreign country. It means that you need to pay only excess tax liability of domestic country

Tax Credit Limit Example

Income                                          100

Tax foreign country @ 40%               40

Remittance                                      60

Domestic Tax on remittance is 10%     6

Tax credit                                          6

Tax paid in foreign Country

Income                                          100

Tax foreign country @ 40%               40

Tax paid in Domestic country

Domestic Tax on remittance is 10%     6

Tax credit                                          6

Tax Paid                                            nil

It is important to note that tax credit was reduced to $ 6, because tax liability of domestic country was only $ 6. The total Tax liability is $ 40 i.e. foreign tax.