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Tax Residency Certificate in India in 2022: Complete Guide

In the following article, you will learn about the meaning of DTAA and TRC. You will learn how an individual resident or non-resident uses the Tax Residency Certificate to avoid paying double tax.

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Tax Residency Certificate

Tax Residency Certificate

Individuals or businesses may receive revenue from more than one nation. These revenues might be taxed in both nations. Consequently, these individuals or firms may be liable to double taxation. To avoid double taxation on the income generated from different countries, the Indian government has entered into a treaty called the Double Taxation Avoidance Agreement (DTAA). An individual uses a Tax Residency Certificate to avoid paying tax on the revenue generated from both countries.

In the following article, you will learn about the meaning of DTAA and TRC. You will learn how an individual resident or non-resident uses the Tax Residency Certificate to avoid paying double tax.

Meaning Of Tax Residency Certificate

A Tax Residency Certificate is a document provided to Indian residents receiving income from nations with which India has a Double Taxation Avoidance Agreement (DTAA).

Starting from April 1, 2013, a Tax Residency Certificate may be obtained from the Income Tax Department by the residents of India who receive income from nations with which India has a DTAA.  The same can be delivered to the Payer to claim DTAA benefits.

Meaning of Double Taxation Avoidance Agreement

A tax agreement known as the Double Taxation Avoidance Agreement, or DTAA, was formed between India and other nations to prevent taxpayers from being taxed twice on income received from foreign countries.

The Double Taxation Avoidance Agreement (DTAA) is fundamentally a bilateral contract signed by two nations to promote and foster economic investment and commerce between two countries and prevents paying tax on the same income twice.

The necessity of a Tax Residency Certificate

An individual income originates from wherever the services are provided or from the asset through which the revenue is derived. When determining a person’s residence status in India, the current financial year, which runs from 1 April to 31 March, as well as the 10 financial years prior, are taken into consideration.

Individuals who qualify as ‘Resident or Ordinarily Resident’ (ROR) are subject to taxation on the global income in India. His income from both domestic and foreign sources will be taxed. Additionally, such overseas income may also be subject to tax in the nation of origin. Hence, to avoid the situation of double taxation and to benefit the taxpayers, India has entered into a treaty called Double Tax Avoidance Agreement (DTAA)

Hence, to claim the benefits of DTAA, as per the Income Tax Law, a Tax Residency Certificate from the tax authorities of the resident’s nation is necessary. TRC is a certificate that is issued by the income tax department that attests to the fact that the person was a resident of that country during the given fiscal year. TRC is used as documentation proof of tax residency to confirm qualifications for  DTAA relief claims.

Acquiring a tax residency certificate in India

  • Getting a tax residency certificate for resident taxpayer

An Indian resident who receives income from foreign nations with which India has a DTAA can get the tax residency certificate from the Income Tax Department. A resident of India would need to fill up Form No. 10FA and submit the application to the Assessing Officer to receive a TRC. After receiving the application, if the Assessing Officer is satisfied, the Officer will issue a TRC for such individuals.

  • Getting a tax residency certificate for a non-resident taxpayer

According to Income Tax Law in India, every non-resident must get a TRC from the nation’s government or designated area that he claims to be a resident of. This TRC shall include the following information:

  • The taxpayer’s name and status
  • The taxpayer’s nationality in case of an individual taxpayer
  • An entity incorporated or registered in the nation or designated territory (in the case of a firm)
  • The taxpayer’s tax ID number is following the nation or designated territory in which he resides. In the absence of a tax ID number, any special number depending on which the government of that nation or designated territory can identify the person as a resident.
  • Status as a resident for tax purposes
  • The duration of the certificate’s validity
  • Taxpayer’s address till the duration of the certificate’s validity.

The non-resident taxpayer must submit the required information in Form 10F.

Consequences if a non-resident is unable to produce a TRC

  • In situations where a nonresident is unable to give TRC or delay happens, the paying body may choose to withhold taxes at a greater rate rather than implementing the treaty’s advantageous terms.
  • In such a situation, the non-resident might choose to file an ITR in India to request income tax refunds.

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Conclusion

The above article provides a brief overview of a Tax Residency Certificate. It details how a TRC can be obtained to take advantage of a Double Taxation Avoidance Agreement.

For more questions about Tax Residency Certificates consult Odint Consultancy. We will be pleased to respond to your inquiries.

FAQ’s

TRC is a certificate issued by the Income Tax Authority to Indian residents to avoid paying double tax on income from nations with whom India has a DTAA treaty.

The Double Tax Avoidance Agreements (DTAA), a tax treaty signed by two or more nations, aims to prevent taxpayers from being taxed twice on the same income. When a person lives in one country but receives income from a different one, a DTAA is applicable.

A TRC helps individual residents enjoy the benefits of the DTAA treaty which was signed by two or more nations to assist taxpayers in avoiding paying double taxes on the same income.

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