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What is Tax Residency Certificate in India for Resident & Non-Resident Taxpayers

Updated on: 03 Jun, 2024 12:03 PM

You may have incomes from more than one country. Such incomes may be taxable in both countries due to their domestic laws, even though you are a tax resident in only one of those countries. Thus, to avoid paying such double taxes on the same income in both the source country and country of residence, double taxation avoidance agreements (“DTAA”) (otherwise known as tax treaties) are entered between various countries. Such agreements offer the taxpayers the benefit of tax paid in the other country with which it has a tax treaty.

The Indian government has various DTAA with various countries. These tax treaty provisions apply only to residents of those countries which are parties to such tax treaties. Therefore, it becomes pertinent to confirm which country the person is a tax resident of. One of the main pieces of documentary evidence to establish tax residency and support eligibility for a DTAA relief claim is a tax residency certificate (“TRC”). This article attempts to explain this in further detail.

What is Tax Residency Certificate?

Income is said to be earned by a person in the country (source country):

  • where he either renders his services or
  • where he receives any income arising from an asset that is located in that country.

However, he may be based out of a different country (country of residence).

For determining the residential status in India, a person’s physical stay is considered for the relevant years.

A person who qualifies as a ‘Resident and Ordinarily Resident’ (ROR) is required to offer to tax all his income earned across the globe. Both his Indian and foreign income will be subject to tax. Also, such foreign income may be taxed in the source country as well. You will end up paying tax on the same income twice- once in the source country and once in the country of residence. To avoid such situations, the nations enter into DTAA to provide benefits to the taxpayers. The taxpayers can claim DTAA benefits at the time of paying taxes in such countries. Such a DTAA benefit can be claimed only after he proves his domicile in such country, and in order to do so, a TRC helps establish the tax residency of such a person. In essence, Tax Residency Certificate is a document/certification issued by the tax authorities of the country of the person, confirming that such person is a resident of such country in that particular financial year. In brevity, TRC is proof of residency.

In other words, a tax residency certificate in India is a document issued by the Income Tax Department of the resident country of a taxpayer as proof of an individual’s residency in the country.

India has made it mandatory for non-resident taxpayers who earn income from India and desire to claim the treaty benefits to furnish a valid Tax Residency Certificate obtained by them from their respective country’s government. Similarly, tax authorities of various countries stress upon such TRC to determine the eligibility for availing tax treaty benefits.

Who Can Obtain Tax Residency Certificate?

Both individuals and corporate entities recognized as tax residents of India have the option to acquire a Tax Residency Certificate.

Taxpayers need to fulfill the following conditions in order to obtain a Tax Residency Certificate -

  • The businesses or individuals must be the tax residents of the issuing country.
  • They must own a fixed business establishment in a foreign country.
  • Or they must be a resident of a foreign country in order to obtain a domicile certificate.

To obtain this certificate, an assessee officially considered a resident of India should submit an application in Form No. 10FA to the assessing officer. Upon satisfaction, the officer will then issue a residence certificate for the assessee in Form No. 10FB. It's worth noting that the application for a Tax Residency Certificate cannot be completed online.

If you are a resident Indian earning income from more than one country, and you find TRC (Tax Residency Certificate) and DTAA (Double Taxation Avoidance Agreements) confusing, our Tax Advisory Service is tailored to provide valuable assistance for your specific needs.

Benefits of Tax Residency Certificate

Here are the benefits of obtaining a tax residency certificate -

  1. Avoidance of Double Taxation:
    TRCs are crucial for claiming benefits between countries under Double Taxation Avoidance Agreements (DTAAs). These agreements ensure that income isn't taxed twice—once in the source country and again in the resident country. The TRC serves as proof of residency, allowing individuals or entities to benefit from reduced or exempted tax rates as outlined in the specific treaty.
  2. Access to Tax Treaty Benefits:
    Holding a Tax Residency Certificate enables individuals or entities to access the benefits provided by tax treaties between countries. These benefits may include lower withholding tax rates on certain types of income, such as dividends, interest, royalties, etc.
  3. Documentation for Tax Compliance:
    TRCs serve as vital documentation for tax compliance purposes. They help establish the tax residency status of an individual or entity, which is crucial when dealing with tax authorities, financial institutions or when filing tax returns.
  4. Simplified Administrative Procedures:
    For businesses engaged in cross-border activities, holding a TRC can simplify administrative procedures related to taxation. It helps in ensuring that the correct tax treatment is applied, reducing the chances of disputes with tax authorities in different countries.
  5. Proof of Residence for Financial Transactions:
    TRCs are often required by financial institutions for various financial transactions, including opening bank accounts, making investments, or engaging in international trade. These certificates validate an entity's or individual's residency status for tax purposes.
  6. Credibility and Transparency:
    Holding a TRC enhances credibility and transparency in international transactions. It provides clarity on the tax residency status of an individual or entity, contributing to a smoother and more transparent financial operation.

Income Categories Eligible for TRC Benefits

Tax Residency Certificate (TRC) covers different types of income, including:

  • Income derived from services provided in a foreign country or India.
  • Dividends received from shares and other funds in India.
  • Income generated from agriculture or the sale of agricultural produce in a foreign country or India.
  • Capital gains arising from the sale of property situated in a foreign country or India.
  • Interest accrued on fixed deposits in India.
  • Salary received for services performed in a foreign country or India.
  • Interest earned on savings bank accounts in India.
  • Earnings originating from assets located in a foreign country or India.

How to Get Tax Residency Certificate in India?

Tax Residency Certificate for Indian Resident Taxpayer

An Indian resident earning income from other countries with which India has a DTAA can obtain a TRC from the Indian income tax department. Such Indian residents may submit the same in order to claim the tax treaty benefits. In order to obtain such a TRC, a person would need to make an application in Form No. 10FA to the Assessing Officer. Upon receipt of such an application and being satisfied in this regard, the Assessing Officer would then issue a TRC in respect of such person in Form No. 10FB.

Tax Residency Certificate for Non-Resident Taxpayer

Any person who is a non-resident, as per Indian income tax law, shall obtain a TRC from the government of the country or the specified territory of which he claims to be a resident. This TRC must consist of the following details, namely:-

  • Name of the taxpayer;
  • Status of the taxpayer (individual, company, firm, etc.);
  • Nationality (if the taxpayer is an individual) or country/specified territory of incorporation (in case of a company, LLP, or Firm) or registration (in case of others);
  • Taxpayer's tax identification number as per the country or specified territory of residence, or if he does not have such a number, then any unique number based on which the person is recognized as a resident by such country's government or the government of a specified territory;
  • Residential status for tax purposes;
  • The period during which the certificate is valid; and
  • Address of the taxpayer for the period for which the certificate is applicable;

TRC format could be different for different countries. Thus, if the Tax Residency Certificate issued by the foreign government does not contain a few or any of the details mentioned above, then the non-resident taxpayer would be required to furnish the details as mentioned above in Form 10F.

It is advisable for non-resident taxpayers to keep and maintain such documents as may be necessary to substantiate the information provided in Form 10F. Also, the income tax authority may require the person to provide the said documents for verification.

ITR filing for FY 23-24 has begun and filing your ITR now can keep penalties and notices at bay and also expedite your income tax refund.

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Frequently Asked Questions

Q- What is a Tax Residency Certificate (TRC)?

A Tax Residency Certificate (TRC) is an official document issued by a country's tax authority to confirm an individual's or entity's status as a tax resident in that particular country for a specific period.

Q- Why is a Tax Residency Certificate important?

TRCs are crucial for claiming benefits under Double Taxation Avoidance Agreements (DTAAs) between countries. They help prevent double taxation and provide access to reduced or exempted tax rates on various types of income.

Q- Who can apply for a Tax Residency Certificate?

Generally, individuals or entities (such as companies, partnerships, trusts) that are tax residents in a specific country can apply for a TRC. Requirements and eligibility criteria may vary between countries.

Q- How can I obtain a Tax Residency Certificate?

The process and requirements for obtaining a TRC vary by country. Typically, applicants need to submit specific documentation, including proof of residence, tax identification numbers, income details, and any other documents required by the tax authorities.

Q- What benefits does a Tax Residency Certificate offer?

TRCs facilitate access to tax treaty benefits, including lower withholding tax rates on certain types of income like dividends, interest, royalties, etc. They also provide documentation for tax compliance and simplify administrative procedures for cross-border transactions.

Q- How long is a Tax Residency Certificate valid for?

The validity period of a TRC varies depending on the country issuing it and the specific terms of the certificate. Some TRCs are valid for one year, while others may have longer validity periods.

Q- Can a Tax Residency Certificate be renewed?

Yes, in most cases, TRCs can be renewed by submitting updated documentation and meeting the renewal requirements set by the tax authorities.

Q- Can I use a Tax Residency Certificate in all countries?

TRCs are specific to the country that issues them and are generally used to claim tax treaty benefits between that country and other countries with which it has a tax treaty.

Q- Can individuals and companies both apply for a Tax Residency Certificate?

Yes, both individuals and entities like companies, partnerships, or trusts can apply for a TRC if they meet the eligibility criteria set by the respective tax authorities.

Q- Is a Tax Residency Certificate the same as a Tax Identification Number (TIN)?

No, a Tax Residency Certificate confirms tax residency status, whereas a Tax Identification Number (TIN) is a unique identifier issued by tax authorities to track tax-related activities of individuals or entities.

Q- What is Form 10F?

Form 10F is a self-declaration tax form used by non-resident (NR) taxpayers in India. It's primarily used to claim the benefits of Double Taxation Avoidance Agreements (DTAAs) when their Tax Residency Certificate (TRC) lacks specific details.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.