As tax rules vary from country to country, it’s important to understand an individual/entity’s residential status to determine the chargeability of any income. When both source and residency rules apply to the same income, double tax arises. This is where the Double Taxation Avoidance Agreement (DTAA) and Tax Residency Certificate (TRC) come into play.

What is Tax Residency Certificate (TRC)?

In simple terms, a Tax Residency Certificate (TRC) is a proof of residency of a person in a country that enables the person to claim relief under the provisions of applicable DTAA. It’s also known as a tax domicile certificate. Whenever you talk about foreign taxation or double taxation, the very first thing your advisor would ask for is TRC.

All Indian residents who have active income from countries with which India has a DTAA can obtain a Tax Residency Certificate India from the income tax department to obtain the benefits of DTAA. Let’s understand the logic behind the same by learning more about DTAA and double taxation.

What is Double Taxation Avoidance Agreement (DTAA)?

Double Taxation Avoidance Agreement (DTAA) is a pact between more than one territory to avoid taxing the same income twice. 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 comprehensive, i.e., covering all types of income or specifically targeting specific types of payment, depending 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.

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?

Both individuals and corporates who are officially residents of India can obtain a Tax Residency Certificate. To obtain the certificate, an assessee who is officially a resident of India shall apply in Form No. 10FA to the assessing officer. The officer will issue a certificate of residence for the assessee in Form No 10FB on being satisfied on this behalf. It’s important to note that you cannot apply for a Tax Residency Certificate online.

How can a non-resident assessee obtain TRC?

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

(i) Name of the applicant

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

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

(iv) Country or specified territory of incorporation/registration

At Ahuja & Ahuja Chartered Accountants, a Full-Service Indian Chartered Accountants Firm in Delhi / NCR, India, we provide services for obtaining Tax Residency Certificate for individuals and corporates. Our expert and experienced Chartered Accountants with industry experience of over two decades ensure that the process is hassle-free and streamlined.

Frequently Asked Questions about Tax Residency Certificates:

Why is it important to obtain a Tax Residency Certificate?

A Tax Residency Certificate is important because it allows you to claim relief under applicable Double Taxation Avoidance Agreements. This helps avoid double taxation on the same income in both the country of residence and the country where the income is earned.

Which form do I need to file to apply for a Tax Residency Certificate?

You need to file Form No. 10FA of the Income Tax with the Assessing Officer to obtain a Tax Residency Certificate.

What details are required to file Form 10FA?

The following details are required to file Form 10FA:

  • Name and address of the assessee
  • Status (individual, HUF, company, etc.)
  • Nationality (in case of an individual)
  • Country of incorporation or registration (in case of others)
  • Email ID and PAN of the assessee
  • Period for which the residence certificate is applicable
  • Basis on which the status of being resident in India is claimed
  • Purpose of obtaining Tax Residency Certificate

Do I need to submit any documents with the TRC application?

While there are no prescribed documents that need to be attached with the application, since the basis of residency is the number of days of stay in India, it is advisable to attach a document explaining your in and out movements from India along with a copy of the passport with the departure and arrival stamps as evidence.

Can I apply for a Tax Residency Certificate online?

No, the application for a Tax Residency Certificate cannot be made online. It must be filed in person with the Assessing Officer.