A Tax Residency Certificate 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 Treaty Agreement. To avoid tax payment on the same income again, one can take benefit of the Double Taxation Avoidance Agreement.

Obtaining Tax Residency Certificate

For obtaining a certificate of residence for the purposes of an agreement referred to in Section 90 and section 90A of an Income Tax Act, an assessee being a resident in India shall make an application in Form No.10FA to the Assessing Officer.

The Assessing Officer, on being satisfied, on the receipt of an application, referred shall issue a certificate of residence in Form No.10FB.

The tax residency certificate helps establish which country you are a tax resident of so that the Double Taxation Avoidance Agreement can be applied and avail benefits. India has made it necessary to obtain this certificate for someone who wishes to avail DTAA benefits with which India has entered into a treaty. NRIs will need TRC to submit to their host country, and it will be required by foreign nationals who earned income from India and desire to take benefit of the treaty.

Why is it important?

The source of income of the Resident individual lies where the services are performed or where the asset, from which the income arises, is located.

To determine the Residential status in India, the physical presence in India in the current financial year, i.e. (1Aprilto 31 March) and preceding 10 Financial Year, is taken into consideration.

The taxability of an individual qualifying as a Resident and Ordinarily Resident (ROR) is on the global income in India, i.e. Income earned in and/or outside India. Consequently, there may be instances where the same income is being taxed in the resident country (i.e. India) and the source country (Where the Income has been earned). Likewise, income sourced in India may also be taxed in the resident country of the individual.

To claim applicable relief under the DTAA, a tax residency certificate is required from the resident country tax authorities under the India income-tax law.

For instance, if an individual requires a tax residency certificate for India, an application is required to be made in Form 10FA to the income-tax authorities. On successful processing of the application, the certificate is issued by the respective authorities in Form 10FB.

How to Obtain a Tax Residency Certificate in the case of a Non-Resident Assessee?

In the case of an individual who is a Non-Resident Assessee, the following process is required to be followed-

An assessee not being a resident in India, i.e. Non-Resident Assessee, shall obtain Tax Residency Certificate (TRC) from the Government of the country, or the specified territory of which individual claims to be resident, comprising of the details of the assessee mentioned below shall be provided by the non-resident assessee in Form 10F-

(i) Name of the assessee;

(ii) Status (individual, company, firm etc.) of the assessee;

(iii) Nationality (in case of individual);

(iv) Country or specified territory of incorporation or registration (in case of others);

Additionally, the below-mentioned points are also required to be taken into consideration-

(v) The tax identification number of the Assessee in the country or specified territory of residence is required.

However, in case no such number, then, a unique number based on which the person is identified by the Government of the country or the specified territory;

(vi) Residential status of the Assessee for the taxation purpose,

(vii) Time Duration for which the certificate is applicable; and

(viii) Address of the applicant for the time duration for which the certificate is applicable;

What procedure is required for obtaining a Certificate for claiming relief under an agreement referred to in sections 90 and 90A is specified under rule 21AB of the Income Tax Rules?

1. The above-mentioned information of the assessee, i.e. Name, address, Nationality, Time duration, residential status, is required for obtaining a certificate claiming relief under an agreement referred to in Section 90 and 90A.

1. The above-mentioned certificate shall be duly verified by the Government of the country or the specified territory of which the assessee claims to be a resident for tax relief purposes.

1. The assessee may not be required to provide the information or any part thereof if the information or the part thereof, as the case may be, is contained in the certificate referred to in section 90 or section 90A.

1. Maintenance of the documents by the assessee is necessary to justify the information provided. An income-tax authority may require the assessee to provide the said documents in relation to a claim by the said assessee of any relief under an agreement referred to in section 90 and Section 90A.

1. An assessee, being a resident in India, shall make an application in Form No. 10FA to the Assessing Officer for obtaining a certificate of residence for the purposes of an agreement referred to in section 90 and section 90A to the Assessing Officer.

1. Assessing Officer on being satisfied, shall issue a certificate of residence in Form No.10FB.

Conclusion

India has made it necessary to get a Tax Residency Certificate for a person who wishes to avail DTAA benefits of a treaty India has entered into. NRIs may need the certificate to give it to their host nation.