| Engagement snapshot | |
|---|---|
| Client archetype | India-headquartered group (sector withheld) with an Indonesian affiliate and deputed staff |
| Service line | International tax: treaty relief and foreign tax credit (FTC) assessment |
| Jurisdictions | India (governs the credit) · Indonesia (source-country tax) · India-Indonesia DTAA |
| Engagement model | Project-based assessment |
| Duration band | Not disclosed |
| Frameworks | Income-tax Acts 1961 and 2025 · UU PPh · PMK 112/2025 · DTAA |
| Team shape | Partner-led; manager; senior; JCSS India liaison |
What was the challenge?
The Indian credit is only as strong as the Indonesian withholding evidence behind it, and the Indian filer does not control that evidence. India taxes the group on worldwide income and credits Indonesian tax under the DTAA.
| Challenge | Operational reality | Business risk |
|---|---|---|
| Treaty cap versus domestic rate | Indonesia withholds 20% on non-resident income (UU PPh Pasal 26(1)); the DTAA caps dividends, interest, royalties and fees at 10% | Tax above the cap is generally not creditable, so a full claim overstates relief |
| Treaty rate depends on a form | The 10% rate needs a valid Formulir DGT with the payer (PMK 112/2025) | No form means domestic-rate withholding and cash locked in Indonesia |
| Two Indian regimes | FY 2025-26: 1961 Act, Rule 128, Form 67. Tax year 2026-27: 2025 Act (effective 01 Apr 2026), Rule 76, Form 44 | The wrong form or deadline puts the credit at risk |
| Deputed employees | Indonesia taxes their pay (PMK 168/2023); the individual claims the credit, not the group | Group and employee claims overlap or leave gaps |
How did JCSS Indonesia approach it?
We fixed the Indian credit rules first, then tested every Indonesian payment against them.
Fix the governing jurisdiction and year. We mapped each year to its Indian regime: Section 90, Rule 128 and Form 67 to FY 2025-26; Section 159, Rule 76 and Form 44 after. Artefact: transition map.
Classify every Indonesian stream. We tagged each stream to DTAA Articles 10, 11, 12 or 15 and its Indonesian charging provision. Artefact: income-stream matrix.
Test withholding against the cap. We compared tax withheld with the DTAA cap and checked the Formulir DGT, beneficial-owner and holding-period tests in PMK 112/2025. Artefact: cap-test schedule isolating the excess.
Assemble the evidence file. We indexed each bukti potong (withholding slip), payment proof and foreign-tax statement required by Rule 128 and Rule 76(10)(b). Artefact: evidence index.
Compute credit per source and country. We applied the lower of Indonesian tax paid and Indian tax attributable per stream, without netting. Artefact: computation workbook.
Prepare filing schedules. We drafted Form 67 and Form 44 schedules for the Indian filer and verifying accountant, logging refund and dispute items. Artefact: filing calendar.
Why this approach: claiming the full Indonesian withholding is faster, but Article 23(1) credits only tax on income the DTAA lets Indonesia tax. We rejected that route and sent the excess to Indonesian recovery.
Which Indonesian taxes are creditable in India?
Credit follows the treaty cap, stream by stream.
| Income stream | Indonesian tax | Treaty cap | Indian FTC evidence |
|---|---|---|---|
| Dividends; interest | PPh 26, 20% (Pasal 26(1)) | 10% (Art 10(2); Art 11(2)) | Bukti potong, Formulir DGT, payment proof, foreign-tax statement |
| Royalties; technical or management fees | PPh 26, 20% where taxed as Indonesian-source | 10% (Art 12(2)-(3)) | Same file, plus contract and place of performance |
| Deputed employees | PPh 21 if tax-resident; else PPh 26, 20% final or DTAA (PMK 168/2023 Pasal 14(1)) | Art 15(1)-(2): 183-day test | Withholding slip and payroll certificate |
How does the cap work? A hypothetical illustration
Hypothetical – not a JCSS client result. Round INR figures; Indonesian tax assumed already in INR (no exchange rate). Assumed Indian rate 25%; the dividend bore 20% without a valid Formulir DGT.
| Stream | Gross (INR) | Paid (INR) | At cap (INR) | Indian tax (INR) | Credit (INR) |
|---|---|---|---|---|---|
| Dividend | 10,000,000 | 2,000,000 | 1,000,000 | 2,500,000 | 1,000,000 |
| Technical fees (Indian net income 1,200,000) | 6,000,000 | 600,000 | 600,000 | 300,000 | 300,000 |
| Total | 16,000,000 | 2,600,000 | 1,600,000 | 2,800,000 | 1,300,000 |
Credit is INR 1,300,000, not INR 2,600,000. INR 1,000,000 of dividend tax exceeds the cap and goes to Indonesian recovery; INR 300,000 of fee tax is unrelieved under the lower-of test.
What were the results?
The India tax team received a creditable amount traceable, stream by stream, to an Indonesian document.
| Result | Measure | Why it matters |
|---|---|---|
| Eligibility and excess | Each stream mapped to a DTAA article; tax within the cap separated from the excess | Excess goes to Indonesian recovery, not the Indian claim |
| Evidence file | Per-stream index of slips, forms and payment proof | The filer can attach what the Indian rules require |
| Filing schedules | Form 67 and Form 44 schedules delivered; refund and dispute items logged | No open item between evidence and computation |
Which frameworks and regulations applied?
India governs the credit, Indonesia governs the tax paid, and the DTAA connects the two.
India (governing jurisdiction)
- Income-tax Act, 1961, Section 90; Income-tax Rules, 1962, Rule 128 (Form 67): income years to FY 2025-26. Guidance
- Income-tax Act, 2025, Section 159; Income-tax Rules, 2026, Rule 76 (Forms 44, 45): from tax year 2026-27. Forms FAQ
Indonesia (source country)
- UU 36/2008 on Income Tax, Pasal 26(1), Pasal 23(1): non-resident versus resident withholding. Text
- PMK 112/2025, Pasal 8, 10, 14, 19, 20: Formulir DGT, beneficial owner, holding period; PER-25/PJ/2018-format forms stay valid to their stated expiry. Text · DJP notice
- PMK 168/2023, Pasal 14(1): non-resident individuals' employment income. Text
Treaty
- India-Indonesia DTAA (signed 27 Jul 2012; in force 05 Feb 2016), Articles 10, 11, 12, 15, 23, 26: rate caps, credit method, mutual agreement procedure. Treaty text
Key takeaways for Indian group CFOs and tax heads
- Compute the Indian credit from treaty-rate tax, not from what Indonesia withheld.
- Collect Indonesian evidence at payment; Indian rules require the foreign authority's statement and payment proof.
- Plan filings by regime: Form 67 to FY 2025-26, Form 44 from tax year 2026-27.
Frequently asked questions
Is Indonesian tax above the 10% treaty cap creditable in India?
Generally no. Article 23(1) credits tax on income the DTAA lets Indonesia tax, limited to the Indian tax attributable to it. Where Indonesia withheld the domestic 20% rather than the 10% cap, pursue the excess in Indonesia, subject to Indian counsel's view.
Does PPh 23 or PPh 26 apply when an Indonesian subsidiary pays its Indian parent?
PPh 26 applies, because the Indian parent is a non-resident payee (Pasal 26(1): 20%, or the DTAA rate). PPh 23 (Pasal 23(1)) covers resident payees and Indonesian permanent establishments. The bukti potong must cite the correct article, because the credit file relies on it.
When must Form 67 or Form 44 be filed?
Form 67 is due by the end of the assessment year (31 Mar 2027 for AY 2026-27) where the return was filed in time under section 139(1) or 139(4). Form 44 is due within 12 months of the tax year end: 31 Mar 2028 for tax year 2026-27.
What happens if Indonesian tax is refunded or disputed after credit is claimed?
Disputed foreign tax is not creditable until settled. Form 45 reports settlement within six months from the end of the settlement month; Part C of Form 44 reports refunds of tax already credited. Rule 128 had a similar six-month window for Form 67.