A tax residency certificate is a document that enables Indian residents to enjoy tax relief under the Double Taxable Avoidance Agreement (also known as DTAA). DTAA is an agreement between two or more nations to avoid taxing an income twice (i.e. by the resident nation and the source nation). You can avail the benefits of this tax treaty if you’re a resident of one country and earn income from another.
The Tax Residency Certificate helps you establish your residential status. And thus, it is issued by the country you are a resident of. However, it can be furnished to only those nations with whom India has a DTAA agreement.
Now that you know the meaning of a Tax Residency Certificate, let’s understand its importance.
A Tax Residency Certificate helps you evade double taxation. It is a levy of tax on the same income by two or more nations. To claim income tax relief under the DTAA treaty, a Tax Residency Certificate is mandatory from the tax authority of your resident country. DTAA doesn’t promise that you can avoid double taxation altogether. However, it ensures you do not end up paying an exorbitant amount on your taxes.
You will be taxed for the same income by both the resident and source country if you fail to issue the TRC.
Here’s a list of incomes that receive tax benefits with the Tax Residency Certificate:
Services provided in the non-resident country
Salary received in the non-resident country
Assets in the non-resident country
Capital gains on the transfer of assets to a non-resident country
Fixed deposit in the non-resident country
Saving bank account in the non-resident country
With a Tax Residency Certificate, you can claim tax relief in any one of the two countries.
As an Indian resident assessee, you need to fill and submit Form No. 10FA to the Assessing Officer. The officer will issue a certificate of residence (Form No. 10FB), provided you satisfy all the Tax Residency Certificate requirements. But, how to tell whether you’re an Indian resident?
You are deemed an Indian resident if you satisfy either of the two conditions:
You stayed in India for 182 days or more in the previous year
If you stayed in India for 60 days or more in the current financial year but have resided here for 365 days or more in the four preceding years.
Let’s understand this better with an example:
Sameer, age 27, landed a job in Australia and moved to Sydney on June 3, 2021. However, he resided and earned in India throughout 2019 and 2020. So, Sameer stayed in India for more than 60 days in the current year and over 365 days in the four preceding years. Therefore, he is a resident of India. He can benefit from the Tax Residency Certificate for foreign remittance, income, and other capital gains for that financial year.
As a non-resident assessee, you are liable to obtain the certificate of residency from your home country. Your Tax Residency Certificate must include the following particulars:
Your Name
Your status (individual, firm, company, etc.)
Nationality (in case of individual)
Country or territory of incorporation/registration (in case of others)
Your TIN number (Tax Identification Number) in the resident country (in case of no TIN, it must include a unique identification number assigned by the government)
Residential status for tax purposes
Validity period of the certificate
Your address applicable during the validity period
In case your application for the certificate of residency is approved, here’s how the Assessing Officer will issue your TRC:
See rule 24AB (4)
Certificate of residence for the purpose of Section 90 and 90A
| 1. | Name of the person |
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| 2. | Status |
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| 3. | PAN (Permanent Account Number) |
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| 4. | Address of the person during the period of Tax Residency Certificate |
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It is hereby certified that the above-mentioned person is a resident of India for the purposes of the Income Tax Act, 1961.
This certificate is valid for the period ________.
Issued on _____ the day of ______, ________.
Name of the Assessing Officer
Designation
*Seal*