What is a Tax Residency Certificate

A Tax residency certificate or TRC is a certificate that is issued by the authorities of tax for the non-residents of that country declaring that the non-resident is a resident for that particular tax year for Double Taxation Avoidance Agreement (DTAA) applicability, and is eligible for tax benefits of the tax treaty.

An individual’s physical stay is considered for deciding the status of residence in India. An individual who is qualified as a ‘Resident and Ordinarily Resident’ (ROR) is expected to pay taxes for the taxes that he/she has earned abroad. Both his/her foreign as well as Indian income is subject to tax. This foreign income will be taxed in the country where it was earned too. The individual will end up paying tax for the same income twice- in the resident country as well as source country.

 

In order to avoid such a situation, the nations entered into a DTAA to provide relief to such taxpayers. These taxpayers can claim the benefits while paying income tax in such nations. This benefit can only be claimed after he/she proves his residency in the country, and to prove it, a TRC helps. In short, it is a document that is issued by the IT department of the residency country, confirming that the individual is a resident of that particular country for that particular period.

 

India has made it compulsory for NRIs who have a revenue from India and want to claim the treaty benefits to have a valid TRC.

There are various benefits that you can enjoy by getting a Tax Residency Certificate. Some of the benefits being:

• Double Taxation Relief: A person residing in India may end up paying income tax twice on income that is earned abroad. For instance, a resident earning in the UK may have to pay tax in the UK as well as in India. To prevent this and provide relief, the Indian government enters into a Double Taxable Avoidance Agreement(DDTA) with other countries' governments. In order to enjoy this benefit with DTAA, the taxpayer has to get a TRC that proves the taxpayer’s residency in India.

• Remittance Transparency: In case a resident of India exports goods and services, for the amount remitted for exports to the foreign entities with whom the transaction is made, will ask for the TRC before making a remittance. Thus, Tax Resident Certificate brings transparency in fund remittance of transaction between the two country entities.country 

• One Year Validity: Tax Residency Certificate after it is issued remains valid till the end of the year. Therefore, there is no need for multiple applications or lengthy recurring processes. 

• Salary earned abroad

• Income that is earned from services that are provided abroad

• Income from assets abroad

• Capital gain on property transfer abroad

• Fixed deposit interest 

• Saving bank account interest

• Revenue from agricultural produce sold abroad

• Shares and fund dividends

• Tax Residency Certificate for Indian Resident Taxpayer

A resident of India who earns income from countries with which India has a DTAA agreement can get a TRC from the Indian IT department. Such residents of India can submit TRC to claim the benefits of tax treaty. In order to get a TRC, the person would have to make a Form no.10FA application to the assessing officer.

 

The assessing officer on getting such an application after being satisfied with the application, the officer would issue a TRC of such a person in Form no.10FB

• Tax Residency Certificate for Taxpayers who are Non-Residents

Any individual who is a non-resident of India, as per Indian IT law, should obtain a Tax Residency Certificate from the country’s government or the territory of which he/she claims to be a resident. This TRC has to contain the following details, namely:-

1. Taxpayer’s name

2. Taxpayer status ( firm, company, individual etc.)

3. Nationality or specified territory/country of incorporation (in case of a LLP, company or Firm) or registration 

4. Taxpayer's tax ID number 

5. Residential status

6. Certificate validity period and

7. Taxpayer address for the time period in which the certificate is applicable;

 

The Tax Residency Certificate format varies from country to country. Therefore, if the TRC is issued by the government of a foreign country that does not have a few details mentioned above, then the non-resident individual will be required to provide the details mentioned in Form 10F.

 

It is recommended that the non-resident individual keeps and maintains such documents as it may be necessary to provide evidence for the details provided in Form 10F. Additionally, the IT authorities may need to verify these documents.

This form is used as identification proof and to identify if you pay taxes in your country of residence. The time period that you have been a resident of that country has to be mentioned in the TRC. NRI individuals who do not have enough information from TRC and PAN are required to fill this form.

It is important to file Form 10F for the following reasons:

• The form allows you to claim TDC at a lesser rate 

• NRIs who do not have a PAN card but receive money from India have the complete Form 10F.

• The IT department has made it compulsory to file Form 10F for NRIs to help them by reducing the tax that they pay

• This form helps NRIs by reducing TDC on payments that are received and made from India.

• The Central Board of Direct Taxes (CBDT) has passed a rule that NRI taxpayers who do not have PAN are not required to file Form 10F until 31st March,2023.

• This relaxation by the board is to provide relief for NRI taxpayers who have to get a PAN card for the sole purpose of filing Form 10F electronically.

The details that have to be provided in Form 10F are:

• Status Assessee

• Nationality

• Tax Identification Number(TIN) 

• Time span for which the status of residence is applicable

• Assessee’s address