Tax Residency Certificate (TRC) Registration

Several individuals and businesses have income from multiple countries. In such cases, their earnings may be taxable in both nations. To avoid such situations, nations usually have double taxation avoidance agreements (DTAAs). This enables taxpayers to pay taxes only in one nation. However, to avail this benefit, assessees need to show the country in which they are tax residents. For this, they need a tax residency certificate (TRC). Tej and Associates offers Tax Residency Certificate (TRC) registration along with other essential tax services like TAN, TDS, GST registrations, Shops Act, MSME registration, Professional Tax ,Employee Provident Fund .  Employee State Insurance, Non STPI and STPI, Import Export Code, and Trade Licence.   

What is a Tax Residency Certificate (TRC)?   

A tax residency certificate is a document issued by the Income Tax department of a taxpayer’s resident country in order to prove an individual’s residence in that nation for a particular financial year.  In India, individuals who qualify as ‘Resident and Ordinarily Resident’ (ROR) are liable to pay taxes on his/her income earned across the world. Additionally, the taxpayer’s income in the foreign country (source country) is taxable as well, leading to double taxation.  In order to avoid such situations, India has double taxation avoidance agreements with 88 countries, among which 86 are active. To avail this benefit, taxpayers need to prove that India is their country of residence by showing a Tax Residency Certificate (TRC) certificate.  Non-resident assessees can also gain the benefits of DTAA by furnishing a TRC from their home countries. 

Tax Residency Certificate (TRC) covers the following types of income:

• Income from assets present in foreign countries. 
• Earnings from services provided abroad. 
• Salary earnings in foreign countries.
• Interest earnings from savings accounts and fixed deposits in foreign countries. 
• Income from shares and mutual fund dividends earned abroad. 
• Revenue from sale of agricultural products. 
• Capital gains earnings on transferring property in foreign countries.    

Additionally, a tax residence certificate remains valid till the end of the financial year from its date of issue. Thus, assessees have to apply for it once a year in order to gain the DTAA treaty benefits. 

 Types of Resident in Income Tax

  As per Indian Income Tax laws, an individual’s residential status can be of the following types:

Resident and Ordinarily Resident (ROR)

As per Section 6(1) of Income Tax Act, for individuals to be deemed as residents, they have to satisfy the following criteria:

• In case they reside in India for 182 days or more within a fiscal year.  
• If they spend 730 days or more in India within a time period of 7 years before the current financial year.
• In case they have resided in India for 365 days or more within 4 years preceding the previous year and fall under the ordinary resident category. Now, according to Section 6(6), individuals have to satisfy the following criteria to come under Resident and Ordinarily Resident:
• If they have stayed in India for a minimum of 2 years in the last 10 financial years preceding the current year. 
• In case they spend 730 days or more in the country in the last 7 years before the current financial year.

       

Resident but Not Ordinarily Resident (RNOR)

To be classified as a Resident but Not Ordinarily Resident, individuals need to satisfy the following criteria:

• In case they resided in India for 730 days or more in the last fiscal year. 
• If they stayed in India for a minimum of 2 out of 10 days in the last financial year.  

 

Non-Resident (NR)

In order to classify as a non-resident, individuals need to adhere to the following requirements:

• In case they stay in India for less than 181 days within a financial year. 
• If they reside in India for a time period not exceeding 60 days within a fiscal year. 
• In case they stay in India for a period exceeding 60 days but not 365 days or more in the last 4 financial years

 

Benefits of Tax Residency Certificate (TRC)

  The benefits of having a tax residency certificate are as follows:

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  Helps Assessees Avoid Double Taxation

TRCs help taxpayers claim the benefits of DTAA treaties. It validates an assessee’s tax residency status, ensuring that their income is not taxed twice. 

•        

  Acts as a Proof of Residence for Financial Transactions

Tax residency certificates also come in handy as proof of residence documents for several financial transactions like conducting international trade, making investments, opening bank accounts, etc.  

•        

  Facilitates Tax Treaty Benefits

Tax residency certificates enable individuals and businesses to reap the benefits which come with DTAA treaties. They include lower withholding tax rates on specific types of income like royalties, dividends, interest, etc.

•        

  Serves as a Document for Tax Compliance

When it comes to adhering to international tax compliances, TRCs act as a vital document. They help establish the assessee’s tax residency status, which is essential while filing returns, or dealing with financial institutions or the tax authorities. 

•        

  Simplifies Administrative Tax Procedures

For multinational businesses, having a TRC is a must. It simplifies tax-related administrative procedures, ensuring that they get the correct tax treatment. Furthermore, it reduces the chances of running into disputes with foreign tax authorities.   

•        

  Provides Transparency in International Transactions

TRCs establish the tax residency status of both individuals and companies. This increases transparency and credibility in international transactions, facilitating smoother financial transactions.      

Tax Residency Certificate (TRC) Requirements

Now, there are some eligibility criteria which assessees must meet in order to get a tax residency certificate. They are as follows:

• Individuals or businesses need to be tax residents of the issuing country. 
• They must also have a fixed business establishment in the foreign country. 
• Or, they need to be a resident of that foreign country to gain a domicile certificate.    

 

How to Apply for a Tax Residency Certificate (TRC) in India?

Assessees can apply for a tax residency certificate India with the Income Tax Department. They can file a TRC claim by submitting application Form 10FA. If the assessing officer is satisfied with the application, he/she will issue a TRC via Form 10FB     

Form 10F Income Tax

Form 10F serves as identification proof to confirm whether assessees pay taxes in their country of residence. It contains the time period for which taxpayers have been a resident of that country and is mentioned in the TRC when it is issued.  NRIs who do not have adequate information in their TRCs and cannot furnish their PAN card need to fill out this form.    

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

NRIs need to obtain a tax residency certificate from the foreign country’s authorities or the country in which they are a resident. They need to provide the following details:

• Name of the taxpayer
• Assessee’s status (individual, firm, company, etc.)
• Aadhaar number of Permanent Account Number (PAN)
• Nationality (in case of individual taxpayers) or country/country of registration (for others)
• Tax Identification Number (TIN) of the assessee
• Period of residential status as present under Section 90 (4) or Section 90A (4). 
• Assessee’s address in the country outside India.

Now, the TRC format may differ across countries. Therefore, if a taxpayer’s tax residency certificate is issued by the government of a foreign nation and does not include the above-mentioned details, NRIs have to provide that information while filing Form 10F.  Taxpayers can also renew their Tax Residency Certificate (TRC) before the financial year ends to continue availing the DTAA treaty benefits. This can be done by submitting the updated documents and adhering to the renewal requirements set by the income tax authorities.  However, this process is not instantaneous and the required time can vary across nations. Thus, applying for a TRC renewal well before the financial year ends is advisable. Under law, identity or recognition of a person is established by relevant documents mentioned under those laws. For example passport establishes citizenship; Aadhar Card establishes residency for the purpose of government subsidies and benefits. In the same way, residency under direct tax laws is established by ‘Tax Residency Certificate’ also known as ‘TRC’. Tax Residency Certificate (TRC) is a certificate issued by the Income Tax Department to the Indian Residents who earn income from countries with which India has a Double Taxable Avoidance Agreement (DTAA). The certificate is submitted to the payer (that is a foreign entity with whom the transaction is entered into) so that the foreign entity may pass on the benefits under DTAA to the Indian Residents. Though TRC is a document which is not a prerequisite for claiming the credit of foreign taxes under Income Tax Act, 1961 (Act), it is increasingly becoming an imperative document due to its demand made by the foreign entities who wants to be cautious and wants the identity of the counterparty (that is the Indian Resident) to be vouched by independent government authority.

Benefits of Tax Residency Certificate (TRC):

Relief in Double Taxation: A person resident in India may end up paying tax twice, on income earned in foreign countries. For instance a resident earning an income from the USA shall have to pay tax in the USA as well as India. In order to provide relief to such taxpayers, the Government of India entered into a Double Taxable Avoidance Agreement with the governments of other countries. For getting relief mentioned under DTAA, a taxpayer needs to get a TRC which proves its tax residency in India in front of the US tax authorities. Transparency in Remittance: In case a person resident in India exports goods and/or services, for remitting the amount for exports the foreign entity with whom the transaction is entered into more often than not, asks for the TRC before making remittance. Thus, TRC brings transparency in remittance of funds of transaction between the two entities located in two different country Once in Year Activity: TRC certificate once issued, remains valid till the end of the financial year. Hence, there are no multiple applications or lengthy recurring processes.   

Prerequisites to obtaining Tax Residency Certificate (TRC)

An application for obtaining TRC needs to be done in Form 10F/10FA to the Jurisdictional Assessing Officer. The information required in Form 10F/10FA is: Status (individual, company, firm etc.) of the taxpayer; Nationality or country of incorporation; Unique Identification Number from which the Government of taxpayer’s resident country identify the taxpayer (example- Certificate of Incorporation or Aadhaar); Period for which the residential status, as mentioned in the certificate is applicable; Address of the assesse in the country or specified territory outside India, during the period for which the certificate is applicable.   In case, the Application is made by a person resident in India, the applicable form is Form 10FA. In case of a non-resident, it shall be in Form 10F. The Assessing Officer on receipt of such application along with all information mentioned above, being satisfied on this behalf issues a TRC in Form 10FB. Any taxpayer, being a resident of India, is aggrieved due to DTAA or due to any of the tax authorities of any country or specified territory outside India for the reason that, according to him, such action / rules of agreement will result in loss, such taxpayer may make an application to the Central Board of Direct Taxes seeking to invoke the Mutual Agreement Procedure, if provided in DTAA. In such case, CBDT shall demand requisite documents which shall include TRC as well. Accordingly, in order to make such relief applications more genuine, TRC is required.   TRC being the proof of residence is mandatory when it comes to availing benefits of DTAAs and recommendatory in case of FTC and foreign remittances. However, with the ever increasing complexity and volume of transactions in the cross country sector, TRC should evolve from just a complimenting document to a role playing document.