Tax Residency Certificate (TRC) in India: Meaning, Benefits & How to Apply

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, a Tax Residency Certificate India 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 India 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.

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Tax Residency Certificate for NRI

NRIs can avail of DTAA benefits by showing tax residency certificate from their country of residence. This certificate allows non-residents to claim tax relief on various types of income earned abroad, which include:

• Income generated from assets located in foreign countries.
• Earnings from services rendered overseas.
• Salary income earned in foreign countries.
• Interest income from foreign savings accounts and fixed deposits.
• Income from dividends on shares and mutual funds earned abroad.
• Revenue from the sale of agricultural products in other countries.
• Capital gains from the sale or transfer of property in foreign countries.

By furnishing a TRC, non-residents can ensure that their foreign income is taxed appropriately under the DTAA provisions, avoiding double taxation.

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Tax Residency Certificate Format

Form 10FA
[See rule 21AB (3)]
Application for Certificate of residence for the purposes of an agreement under section 90 and 90A of the Income-tax Act, 1961

To
The Assessing Officer,.

I request that a certificate of residence in Form No. 10FB be granted in my case/in the case of [for person other than individual]

2. The relevant details in this regard are as under: -

3. The following document in support are enclosed:-

1. …………
2. …………
3. ………..

I, [full name in block letters] son/daughter of , in the capacity of [designation for person other than individual], verify that to the best of my knowledge and belief, the information given in this form is correct and complete and that the other particulars shown therein are truly stated.

This certificate is valid for the period ________.

Issued on _____ the day of ______, ________.

[Name of the Assessing Officer]
[Designation]
[*Seal*]

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Difference Between TRC & Form 10F

Key Points Related to Form 10F

• Self-Declaration by Non-Resident: Submitted by NRIs or foreign entities to claim DTAA benefits.
• Supplementary Information: Provides additional details required under the treaty, such as taxpayer name, status, and country of residence.
• Mandatory for DTAA Benefits: Required when the Tax Residency Certificate (TRC) does not contain all necessary details.
• Submission Mode: Can be filed electronically or manually, depending on regulatory guidelines.
• Used Alongside TRC: Works in conjunction with the TRC to validate eligibility for reduced TDS rates.

Key Points Related to TRC (Tax Residency Certificate)

• Issued by Foreign Tax Authorities: Official document provided by the tax authority of the taxpayer’s country of residence.
• Proof of Tax Residency: Confirms that the taxpayer is a resident of the specified country for tax purposes.
• Essential for DTAA Claims: Required to claim treaty benefits and avail lower TDS rates in India.
• Validity Period: Generally issued for a specific financial year and must be renewed annually.
• Mandatory for Non-Residents: Without a TRC, DTAA benefits cannot be claimed.

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How to Obtain a Tax Residency Certificate (TRC) in India for NRIs

1. Apply to Foreign Authorities

Contact the local tax authorities where you permanently reside. Provide details like:

• Name, Assessee Status, Aadhaar/PAN (if applicable)
• Nationality or Country where authority for registration was obtained
• Tax Identification Number (TIN)
• Duration of residential status under Section 90(4)/90A(4)
• Address in a foreign country

2. Form 10F

If the TRC is missing information, you can fill out Form 10F while filing taxes in India.

3. TRC Renewal

To take advantage of DTAA’s benefits, you are advised to renew your TRC before the end of the financial year. Provide all the required documents as early as possible, as depending on the country, it may take some time.

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Type of Resident under Income Tax

Under the Income Tax Act, residents can be classified into the following types:

Resident or Ordinarily Resident (ROR):

Under Section 6(1) of the Income Tax Act, an individual is considered a resident if they meet any of the following conditions:

• They reside in India for 182 days or more during the fiscal year.
• They have resided in India for 730 days or more within the seven years preceding the current financial year.
• They have resided in India for 365 days or more within the four years preceding the previous year and qualify as an ordinarily resident.

To be classified as a Resident and Ordinarily Resident (ROR) under Section 6(6), individuals must meet both of the following conditions:

• They have resided in India for at least two years within the ten financial years preceding the current year.
• They have spent 730 days or more in India within the seven years preceding the current financial year.

Resident but not ordinarily Resident (RNOR):

An individual is classified as a Resident but Not Ordinarily Resident (RNOR) if they meet either of the following conditions:

• They have resided in India for 730 days or more within the seven years preceding the current financial year.
• They have been resident in India for two or less out of the ten financial years preceding the current year.

Non-Resident (NR):

An individual is classified as a non-resident if any of the following conditions are met:

• They stay in India for less than 182 days during the financial year.
• They reside in India for 60 days or less during the financial year.
• They stay in India for more than 60 days but for less than 365 days in the four financial years preceding the current year.

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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 Certificate (Tax Residency Certificate) and DTAA (Double Taxation Avoidance Agreements) confusing, our Tax Advisory Service is tailored to provide valuable assistance for your specific needs.

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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 certificate 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 certificate 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.

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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.

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How to Get Tax Residency Certificate in India?

Tax Residency Certificate for Indian Resident Taxpayers

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.

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