Tax Residency Certificate
- Relief from double taxation
- Provides proof of residence
- Transparency in remittance of funds and transactions between two entities located in different countries
- Once the certificate is issued, it remains valid till the end of a financial year.
- Can be applied in both online and offline modes
- Can be obtained by individuals, both resident, and non-resident, in India
A tax residency certificate (or TRC) is a certificate issued by the Department of Income Tax of India to the Indian residents who receive their income from countries with whom India has an agreement for the avoidance of double taxation, known as the Double Taxation Avoidance Agreement (or DTAA). It has been in effect since 1st April 2013.
Suppose one wants to avoid the payment of tax on the same income twice. In that case, they can apply to get the tax residency certificate in India in accordance with the DTAA, i.e., they can only apply for TRC if the country that provides their income is in a double taxation avoidance agreement with India.
The Government of India had issued Notification No. 39/2012 on 17.19.2012 about publishing forms one would need to avail for a TRC certificate in India. The forms are:
- Form no. 10 FA – To fill an application for a Certificate of Residency, according to Sections 90 & 90 A of the Income Tax Act of 1961.
- Form no. 10 FB – To get the Certificate of Residence for the purposes of Sections 90 & 90 A of the IT Act, 1961.
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What Is The Need For TRC?
The Government of India has made it mandatory to obtain TRC to avail the DTAA benefits, dated April 1st, 2013. It is required to confirm the country one is a tax resident of. This is essential when one has income from more than a single country.
The income source of a resident individual lies where they perform the services or the location of the asset from which the income arises.
The determination of the Indian Residential Status takes the physical presence of the resident in the current financial year, i.e., 1st April to 31st March, and the preceding four years are taken into consideration in accordance with Section 6 of the Income Tax Act.
The non-resident Indians (or NRIs) may be required to submit the TRC to their host country. Foreign nationals who have earned an income from India and want to avail the benefits of the DTAA may also require to submit a TRC.
Eligibility Of Assessees And How To Apply For TRC In India?
For the residents in India – To be a resident of India, either one has to have stayed in India for 182 days or more in the previous year, or stay in India for at least 60 days in the current financial year and should have stayed in India for at least 365 days in the preceding four years.
To obtain a certificate of residence to avail the benefits of the agreement referred to in Section 90 & section 90 A of the Income Tax Act, an assessee who is a resident in India can make an application in Form No. 10 FA to the Assessing Officer.
If the Assessing Officer is satisfied, on the receipt of the application by scrutinizing the documents proving the eligibility, they will issue a certificate of residence in Form No. 10FB.
For non-resident Indians (NRIs) – An assessee who is a non-resident Indian should obtain the TRC from the Government of the country or territory they are the legal resident of. The certificate needs to contain the following information.
- Their Name.
- Their Status (Individual / Company / Firm / HUF).
- Nationality (if an individual).
- The country or the specific territory of registration or incorporation (in the case of others).
- Their residential status for tax purposes.
- Their tax identification number in the country or specified territory of registration is needed. In case of non-availability of the number, a unique number by which the assessee is identified by the Government of their country or registered territory is required.
- The time duration or period for which the certificate is applicable.
- The specified address of the assessee during the above said period of time duration.
The Stepwise Procedure To Obtain TRC
One shall access the official website through the web to find their Assessing Officer (or AO) by entering their registered mobile number and PAN number.
Then prepare documents explaining their in and out movements through a stamped passport. If the check-in and/or check-out is/are made online, they need to provide their air tickets to the assessing officer for verification.
They need to download and fill the Form No. 10 FA and submit it physically to the assessing officer. They also need to attach a copy of the prepared documents mentioned above along with the form.
After the submissions are made, the assessing officer may be satisfied or asked to discuss the documents. After complete validation and satisfaction, the assessing officer will issue the TRC in Form No. 10 B.
Applicable types of Foreign Income for DTAA
- Foreign country capital gains
- Interest on Fixed deposits (or FDs) and Savings bank account
- Revenue from agriculture
- Income from freelancing, consultancy work, or lease of assets.
- Share and Mutual Funds dividend
Benefits and impact of TRC
- A foreign tax deduction can be avoided when applying for TRC to their foreign tax authorities.
- TRC applies not only to residents of India but also to foreign individuals if they fulfill the requirements.
- The TRC provision gives the right to the tax authorities to check the tax beneficiary under the agreement, i.e., DTAA.
- TRC speeds up the whole payment process as the specified format will let the international residents realize the appropriate requirements to receive tax credits.
The Indian Income Tax Department issues a tax residency certificate to the Indian residents who earn their income from countries with whom India has a Double Taxation Avoidance Agreement. You can get it by filling out form 10FB and sending it to an Assessing Officer along with an attached copy of the required documents.
TRC is required to avail of the benefits/relief under DTAA.
Those resident Indians earn their income source from foreign countries with whom India has a Double Taxation Avoidance Agreement.
On issuance of TRC, one can avoid paying taxes on the same income twice.
Form No. 10 FA is available online on the official website.
The Government of India has made it mandatory from 1st April 2013 for assessees to get TRC issued if they want to enjoy the relief provided under the Double Taxation Avoidance Agreement.