Tax in any country is driven by the residential status of an individual or entity. At the same time, the chargeability of any income is determined by both source and residency rules, which vary from country to country. When both these rules apply to the same income, double taxation arises. This is where DTAA (Double Taxation Avoidance Agreement) and TRC (Tax Residency Certificate) come into play.

Whenever we talk about foreign taxation or double taxation, the first document your tax advisor would ask for is the TRC (Tax Residency Certificate), also known as the tax domicile certificate. Let’s learn more about this crucial aspect of foreign taxation.

What is a Tax Residency Certificate (TRC)?

A Tax Residency Certificate (TRC) is proof of residency in a country that enables an individual or entity to claim relief under the provisions of the applicable DTAA (Double Taxation Avoidance Agreement).

All Indian residents who have active income from countries with which India has a DTAA agreement can obtain a Tax Residency Certificate in India from the Income Tax Department to avail of the benefits of the agreement.

To understand why a TRC is important, let’s first explore the concept of DTAA and double taxation.

What is Double Taxation Avoidance Agreement (DTAA)?

A Double Taxation Avoidance Agreement (DTAA) is a pact between two or more countries to prevent the same income from being taxed twice. It establishes pre-determined tax rates and jurisdictional authority for specified types of income arising in a particular country.

For example, if a taxpayer is a resident of one country but earns income from another country, they can benefit from DTAA if both countries have a treaty in place.

DTAA agreements can be:

• Comprehensive: Covering all types of income.
• Specific: Targeting particular types of income (e.g., salary, capital gains, property, services, etc.).

Key Aspects Covered Under DTAA:

• Relief from being taxed in both countries.
• Prevention of double taxation of income.
• Exchange of financial and tax-related information between countries.
• Assistance in the recovery of income tax dues.

What is Double Taxation?

Double taxation occurs when more than one country imposes a tax on the same income, asset, or financial transaction.

This double liability is mitigated through tax treaties between the countries involved, ensuring fair taxation and preventing undue financial burden on taxpayers.

Who Can Obtain a TRC?

• Individuals
• Corporates (Companies, Firms, etc.)

How Can an Assessee Obtain a TRC?

An assessee who is an Indian resident must apply for a TRC by submitting Form No. 10FA to the Assessing Officer.

Once satisfied, the Assessing Officer issues the TRC (Form No. 10FB). It is important to note that you cannot apply for a Tax Residency Certificate online.

If you need more details about TRC forms, you can reach out to us for assistance.

How Can a Non-Resident Assessee Obtain a TRC?

A non-resident taxpayer must obtain a TRC from the tax authorities of the country where they declare residency.

The TRC format must include the following details:

1. Name of the applicant
2. Status of the applicant (Individual, Company, Firm, etc.)
3. Nationality (for individuals)
4. Country of incorporation/registration (for entities)
5. Tax identification number (or any unique identification used for tax purposes)
6. Residential status for tax purposes
7. Period for which the TRC is applicable
8. Complete address of the applicant for the applicable period

Additionally, non-resident taxpayers must provide this information in Form 10F and ensure the certificate is verified by the relevant tax authorities of their country of residence.

Benefits of Having a TRC

1. Relief from Double Taxation

An Indian resident earning income in a foreign country may be required to pay tax in both India and the foreign country.

For example, if a resident receives a payment from the UK, they may be taxed in both India and the UK. To claim relief under DTAA, the taxpayer must obtain a TRC, which proves their Indian residency to the UK tax authorities.

2. Transparency in International Remittances

If an Indian resident exports goods and services, the foreign entity making the payment may require a TRC before processing the remittance.

This ensures transparency in financial transactions between entities located in different countries.

Need Help Obtaining a TRC?

If you are wondering how to get a Tax Residency Certificate in India or need assistance with TRC near Delhi, you can contact us for expert guidance.

For inquiries about TRC self-certification forms or tax residency certificates, feel free to reach out to us at [email protected].