🏦 Introduction

In today’s globalized economy, cross-border investments and transactions have become common for individuals, NRIs, and multinational corporations. However, this often creates a challenge: the same income may be taxed twice—once in the country of source and once in the country of residence.

To solve this, India has entered into Double Taxation Avoidance Agreements (DTAA) with multiple countries. But to claim these DTAA benefits, taxpayers must obtain a Tax Residency Certificate (TRC).

This article provides a comprehensive guide on what TRC is, why it is important, and the step-by-step process to obtain a TRC in India.

🌍 What is a Tax Residency Certificate (TRC)?

A Tax Residency Certificate (TRC) is an official document issued by the Income Tax Department of India that certifies that a person (individual, company, or other entity) is a resident of India under Indian tax laws.

• 📑 It serves as proof of residency for availing DTAA benefits.
• 🌍 Foreign residents must obtain TRC from their home country’s tax authority to claim DTAA benefits in India.
• 🧾 Indian residents require TRC to avail DTAA relief when earning income abroad.

⚖️ What is DTAA?

Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries to ensure the same income is not taxed twice.

👉 Example: An NRI in the USA earns dividend income from India. Without DTAA, the income would be taxed in both India and the USA. With DTAA + TRC, the NRI pays tax in only one country or at a reduced rate in the source country.

🔑 Key Benefits of DTAA:

• 📉 Reduced withholding tax on dividends, interest, and royalties
• ⚖️ Elimination of double taxation
• 🛡️ Prevention of tax evasion
• 💼 Certainty and transparency in taxation

🏢 Who Needs a TRC?

• Individuals (Residents/NRIs): earning income in another country
• Companies: with cross-border transactions
• Foreign Investors in India: to claim reduced tax on dividends, royalties, or capital gains
• Trusts & Partnerships: with international operations

📝 Mandatory Details in TRC

As per Section 90(4) of the Income Tax Act, 1961, a TRC must contain:

📌 Name of the taxpayer 🧑‍💼
📌 Status (Individual/Company/Firm etc.) 🏢
📌 Nationality (for individuals) 🌍
📌 Tax identification number (PAN or equivalent) 🏦
📌 Period of residency 📅
📌 Address in the country of residence 📍
📌 Tax authority issuing the certificate 🏛️

Without these details, DTAA benefits cannot be claimed.

🛠️ Process of Obtaining a TRC in India

1️⃣ Eligibility Check ✅

• Must be a resident in India under Section 6 of the Income Tax Act.
• Must have a valid PAN and be filing Income Tax Returns (ITR).

2️⃣ Application in Form 10FA 📂

• Submit Form 10FA to the jurisdictional Assessing Officer (AO).
• The form requires basic details like name, PAN, address, nationality, purpose of TRC, and the period for which TRC is needed.

3️⃣ Documents Required 📑

• PAN card copy
• Address proof (Aadhaar, passport, utility bill, etc.)
• Copy of Passport & Visa (for NRIs)
• Income Tax Return acknowledgment
• Proof of tax residency (like rental agreement or utility bill)
• Bank statements if required

4️⃣ Issuance of TRC by Income Tax Department 🏛️

• If the AO is satisfied, a TRC is issued in Form 10FB.
• This certificate will specify the residency status and the period of validity.

📌 TRC for Foreign Residents

Foreign investors or companies seeking DTAA benefits in India must obtain a TRC from their home country’s tax authority.

Example:

• A UK resident earning interest income from India must obtain a TRC from HMRC (UK tax authority).
• The TRC is then submitted to the Indian payer to claim DTAA benefits like reduced tax rates.

📊 Practical Example

📌 Case 1: Indian Resident with Foreign Income
Mr. Arjun, an Indian resident, earns consulting fees from Singapore.

• Without DTAA, he would pay tax in both India and Singapore.
• With TRC + DTAA, he pays tax only in India, and can claim credit for taxes paid in Singapore.

📌 Case 2: Foreign Investor in India
A US-based company invests in an Indian startup.

• The dividend income is subject to tax in India.
• By providing a US TRC, the company claims DTAA benefits and pays a reduced tax rate instead of the higher domestic rate.

⚠️ Common Challenges

1. Delays in TRC issuance ⏳ – Due to verification by the AO.
2. Incomplete documentation 📑 – Missing proof of residency leads to rejection.
3. Foreign TRC differences 🌍 – Formats vary by country, creating compliance issues.
4. Annual renewal 🔄 – TRC must be obtained for each financial year.

✅ Benefits of Obtaining a TRC

• ⚖️ Legal requirement for DTAA claims
• 📉 Reduction in withholding tax rates
• 🛡️ Avoidance of double taxation
• 🌍 Cross-border investment made more efficient
• 💼 Boosts investor confidence in compliance

🏦 TRC + DTAA in Startup Funding

Foreign investors funding Indian startups often rely on DTAA benefits. A valid TRC allows them to pay lower withholding tax on capital gains, royalties, or dividends. This makes India a more attractive investment destination for global VCs and private equity funds.

✅ Conclusion

The Tax Residency Certificate (TRC) is a crucial document for individuals, NRIs, and companies who want to claim DTAA benefits and avoid the burden of double taxation.

👉 Key Takeaways:

• TRC is mandatory under Section 90(4) of the Income Tax Act.
• Indian residents must apply via Form 10FA and obtain TRC in Form 10FB.
• Foreign investors must obtain TRC from their home country tax authority.
• A TRC ensures reduced tax liability, compliance, and investment efficiency.

✨ In today’s global business environment, obtaining a TRC is not just a compliance requirement but a strategic tax planning tool. By leveraging DTAA benefits, taxpayers can maximize income, reduce costs, and expand confidently across borders. 🚀

Created & Posted by Ravi
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