Tax Residency Certificate

Tax in any country is driven by the residential status of an individual/entity. At the same time, the chargeability of any income is determined by both source and residency rules, varying from country to country. When in a situation where both these rules apply on the same income, double tax arises. Then comes into play DTAA (Double Taxation Avoidance Agreement) and TRC (Tax Residency Certificate). 

Whenever we talk about foreign taxation or double taxation, the very first thing, which your advisor would ask for, is TRC, i.e. Tax Residency Certificate, which is also known as the tax domicile certificate. Let's learn more about this wing of foreign taxation.

What is Tax Residency Certificate (TRC)?

TRC, in simple words, is a proof of residency of a person in a country that enables such person to claim relief under the provisions of applicable DTAA (Double Taxation Avoidance Agreement).

All the Indian residents who have active income from the countries with which India has double taxation avoidance agreement (DTAA) can obtain Tax Residency Certificate India from the income tax department to obtain the benefits of DTAA. To understand the perfect logic of the same, let's first learn more about DTAA and double taxation.

What is Double taxation avoidance agreement (DTAA)?

A pact between more than one territory to avoid taxing the same income twice is termed as the Double Taxation Avoidance Agreement (DTAA). This means that there are pre-determined tax rates and jurisdiction on specified types of income arising in a country. 

Suppose a taxpayer is a resident of one country/territory and earns income from another country or territory. In that case, he is said to be covered under DTAA if those countries have a treaty in place. DTAAs can be either comprehensive, i.e., covering all types of income or specifically targeting specific types of payment. This depends on the types of businesses/earnings of citizens of one country in another. Common categories covered under DTAAs are services, salary, property, capital gains, savings/fixed deposit accounts, etc.

In crisp DTAA covers the following aspects:

* Providing relief on the income being taxed in both territories

* Avoidance of double taxation of income

* Facilitates exchange of information

* Recovery of income tax

What is double taxation?

Double taxation is the imposition of duty/tax by more than one country on the same income, asset or financial transaction. This double liability is mitigated in many ways; one is a tax treaty between the countries in question. 

Who can obtain TRC?

* Individuals

* Corporates

How can an assessee obtain TRC?

An assessee, who is officially a resident of India, shall apply in Form No. 10FA to the assessing officer, for obtaining a certificate of residence for the purposes of an agreement referred to in section 90 and section 90A. On receipt of the certificate of residency request form, the Assessing Officer shall issue a certificate of residence for the Assessee in Form No 10FB on being satisfied on this behalf.You cannot apply for Tax Residency Certificate online.If you want to seek more information on the Tax Residency Certificate (TRC) Forms, you can feel free to reach out to us.

How can a non-resident assessee obtain TRC? 

A taxpayer, who is not a resident of India, may obtain TRC certificate from the authorities of the country or the specified territory of which the taxpayer declares to be resident. The Tax Residency Certificate format shall contain the following information, namely: -

(i) Name of applicant; 

(ii) Status of the applicant (individual, company, firm etc.) of the taxpayer; 

(iii) Nationality (in case of an individual applicant); 

(iv) Country or specified territory of incorporation/registration (in the case of other applicants); 

(v) Tax identification number of the taxpayer in the country of residence or specified territory or in the case no such identification exists, then, a unique number based on which a person is recognised by Government of that country/specified territory;

(vi) Residential status for tax purposes;

(vii) Period for which the TRC is applicable; and 

(viii) Complete address of the applicant for the period for which the certificate is applicable; 

(ix) The above details shall be provided by the non-resident taxpayer in Form 10F (3) The certificate should be verified by the authorities of the country or the specified territory of which the applicant claims to be a resident for tax 

Benefits of having TRC

Relief in Double Taxation 

A person resident in India might pay tax twice on income earned in foreign countries. For instance, a resident receiving a payment from the UK may have to pay tax in the UK and India. To provide relief to such taxpayers, the Government of India enters into a Double Taxable Avoidance Agreement with the governments of other countries. To get relief mentioned under DTAA's, a taxpayer needs to get a TRC that proves that he is a resident in India in front of the UK tax authorities.

Transparency in Remittance

If a person resident in India exports goods and services, for the purpose of remitting the amount for exports, the foreign entity with whom the transaction is entered into more often than not asks for the TRC before making remittance. Thus, TRC brings transparency in the remittance of funds of a transaction between the two entities located in two different countries.

If you are wondering how to get tax residency certificate in India or looking for someone who can help get you issued the Tax Residency Certificate near Delhi, or if you have any query on the tax residency self certification form or TRC tax, you can contact us at info@manishanilgupta.com.