written by khatabook | November 17, 2022

Tax Residency Certificate (TRC), Features, Importance, Types

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Table of Content


Most Indian professionals live in India, work in India and earn in India. Thus they pay income tax to the Government of India through the processes set by the Income Tax Department. Many Indians have moved out of India and work in a foreign country. Their earnings are taxed by the Government of the country where they work and reside. If they have no income earned in India, there is no tax liability in India.

Some Indians have work or business in India and foreign countries. They may also have other forms of earnings in both countries. This double taxation becomes a heavy burden on the individual. The Tax Residency Certificate (TRC) is a tool to protect the individual from the possibility of double taxation.

Did You Know? India has an Agreement with 94 countries where Indians working can protect themselves from double taxation.

What Is a Tax Residency Certificate?

Tax Residency Certificates are issued by the Income Tax Department to Indian Residents earning from countries where India has a double taxation avoidance agreement. It is submitted to the payer so foreign entities might pass on an advantage under DTAA to Indian Residents.

Overview: Tax Residency Certificate

The Tax Residency Certificate (TRC) is issued by the Income Tax Department, and  Government of India, to Indian Residents and Non Residents.

Purpose: Tax Residency Certificate

The purpose of the Tax Residency Certificate is to confirm the residence status of an individual or firm so that double taxation is avoided.

DTAA – What It Is?

DTAA stands for Double Taxation Avoidance Agreement. It is an agreement between two countries which agree on modalities to ensure that any income earned by an individual or firm is taxed only once. India has entered into such an agreement with a large number of countries.

Also Read: Step-by-Step Guide for E-Verifying Your Income Tax Return

Why TRC?

The Tax Residency Certificate is a document that establishes the residency of an individual or firm for purposes of taxation. The Certificate is recognized by all countries that have entered into a DTAA, making it easier for taxpayers and Governments to process taxes.

Who needs a TRC?

Any individual or firm who has income in their place of residence, as well as their home country, will thus have two sources of income. The taxpayer must file a return declaring the total income received from all sources. Without a system acceptable to any Government, the taxpayer will end up paying income tax in each country. Equipped with a Tax Residency Certificate issued by the resident country, the taxpayer can avoid double taxation.

What are the Laws Governing TRC?

Sections 90 and 90A of the Income Tax Act, 1961 empower the Government of India to enter into appropriate agreements with any other country or entity to protect taxpayers from double taxation.

Section 6 of the Income Tax Act 1961 governs all the clauses, rules and procedures relating to Tax Residency Certificate matters.

Who is an Indian Resident?

A paraphrased extract from Section 6 of the Indian Income Tax Act defines a Resident as follows:

An individual is said to be resident in India in any previous year if he is in India in that year for a period or periods amounting in all to one hundred and eighty-two days or more or has been in India for a cumulative period of three hundred and sixty-five days during the preceding four years out of which he has been in India for at least 60 days in the current year.

A company is said to be a resident in India in any previous year if it is a registered Indian company or It is mainly and effectively being managed from India. For this purpose, effective management implies that all key decisions of the company are taken in India.

Also Read: Depreciation Under Income Tax Act

What are the Steps In Getting a TRC?

Though a crucial document, obtaining a Tax Residency Certificate is fairly simple and clear.

First Step: 

Identify the Appraising Office to whom you need to make the application. This can be obtained by searching your PAN and Registered Mobile Number from the Income Tax Department’s website. This is a one-time effort. It will remain the same as long as your residence or registered office stays within the jurisdiction of this office.

Second Step: 

As an individual, you must prepare a clear document detailing your movements in and out of India during the year and the preceding four years. This should clearly show, with dates, the number of days you were in India and the number of days you were out of India. Your proof of travel and stampings on the passport are documents that the Appraising Officer will look for.

Third Step: 

Download Form 10FA. Fill it. Along with the above document, please submit it to the Appraising Officer. This submission can only be made manually; no online facility is available.

Fourth Step: 

The Assessing Officer will scrutinize the application and the documents. Suppose there are any queries or clarifications required. In that case, the Assessing Officer can send a notice asking the applicant to visit to clarify or produce more documents that the Assessing Officer may want. If the Assessing Officer is fully satisfied with the application, the Tax Residency Certificate will be issued in Form 10FB.

Also Read: All You Need To Know About Section 143(1) of Income Tax Act

Advantages of having a TRC

The Tax Residency Certificate offers several benefits to the taxpayer.

  1. By providing a Tax Residency Certificate, the taxpayer can avoid being taxed twice in each country.
  2. If a Tax Residency Certificate is available, tax deduction at source will be lower.
  3. One does not have to be a citizen of India to obtain a Tax Residency Certificate from India. The mere residential status will be sufficient.
  4. With Tax Residency Certificate, withholding Tax is lower. This is very relevant in cases of incomes like Royalties, Interest, Fees towards Technical Services, Consultancy Fees and Transfer of Capital Assets.

What are the Types of Income where TRC can be used?

The Tax Residency Certificate can prevent double taxation in various kinds of income. They are: 

  • Income from services rendered in a foreign country
  • Income received a salary in a foreign country
  • Assets owned in a foreign country
  • Capital gains on assets transferred to a foreign country
  • Interest on Fixed Deposits in a foreign country
  • Interest on Saving Bank accounts in a foreign country.

Types of Agreements Between Countries

There are several types of Agreements between the Government of India and other countries. These are:

Double Taxation Avoidance Agreement

This is the most comprehensive agreement to protect taxpayers. This is entered into between the Government of India and the other country. 94 countries have signed the DTAA agreement and recognize the Tax Residency Certificate for this purpose.

Limited Agreements 

This is an agreement between the Government of India and another country for a limited and specified purpose. The agreement provides double taxation relief to the income of merchant shipping and airline companies employees. India has such an agreement with the following eight countries: 

  1. Afghanistan
  2. Ethiopia
  3. Iran
  4. Lebanon
  5. Maldives
  6. Pakistan
  7. People's Democratic Republic of Yemen
  8. Yemen Arab Republic

TIEAs

TIEA is an acronym for Tax Information Exchange Agreement. As the name implies, this helps countries to share information on tax matters with each other. India has entered into a TIEA with 21 countries.

SSAs

SSA refers to the Social Security Agreement. This pertains to an agreement with the Government of India and another country where there are cases of cross-border relocation and social security implications. India has agreements with 20 countries for SSA.

Also Read: What is Section 234C - Learn about Interest Imposed by the Income Tax Department

DTAA Countries

Following is the list of DTAA Countries:

  1. Albania
  2. Armenia
  3. Australia
  4. Austria
  5. Bangladesh
  6. Belarus
  7. Belgium
  8. Bhutan
  9. Botswana
  10. Brazil
  11. Bulgaria
  12. Canada
  13. China, People's Republic of
  14. Colombia
  15. Croatia
  16. Cyprus
  17. Czech Republic
  18. Denmark
  19. Egypt
  20. Estonia
  21. Ethiopia
  22. Fiji
  23. Finland
  24. France
  25. Georgia
  26. Germany
  27. Greece
  28. Hong Kong
  29. Hungary
  30. Iceland
  31. Indonesia
  32. Ireland
  33. Israel
  34. Italy
  35. Japan
  36. Jordan
  37. Kazakhstan
  38. Kenya
  39. Korea
  40. Kuwait
  41. Kyrgyzstan
  42. Latvia
  43. Libya
  44. Lithuania
  45. Luxembourg
  46. Macedonia
  47. Malaysia
  48. Malta
  49. Mauritius
  50. Mexico
  51. Mongolia
  52. Montenegro
  53. Morocco
  54. Mozambique
  55. Myanmar
  56. Namibia
  57. Nepal
  58. Netherlands
  59. New Zealand
  60. Norway
  61. Oman
  62. Philippines
  63. Poland
  64. Portugal
  65. Qatar
  66. Romania
  67. Russian Federation
  68. Saudi Arabia
  69. Serbia
  70. Singapore
  71. Slovak Republic
  72. Slovenia
  73. South Africa
  74. Spain
  75. Sri Lanka
  76. Sudan
  77. Sweden
  78. Switzerland
  79. Syria
  80. Tajikistan
  81. Tanzania
  82. Thailand
  83. Trinidad and Tobago
  84. Turkey
  85. Turkmenistan
  86. Uganda
  87. Ukraine
  88. United Arab Emirates
  89. United Kingdom
  90. United States
  91. Uruguay
  92. Uzbekistan
  93. Vietnam
  94. Zambia

Conclusion

As we can see, the Tax Residency Certificate is a very important protection from double taxation. It is a great relief to millions of NRIs and Resident Indians who have incomes from multiple countries. With increasing globalization and the dilution of business borders, the number of beneficiaries of this Certificate will multiply. Understanding its significance and benefits is a must for every taxpayer in the country.
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FAQs

Q: Is the TRC the only way to avoid double taxation?

Ans:

No. Even without the Tax Residency Certificate, double taxation can be avoided. You will need to submit appropriate documents sufficient to satisfy the Assessing Officer of the incidence of double taxation. This way, the taxpayer can be protected as long as the other country is included in the DTAA. (And in specific cases where Limited Agreement is applicable).

Q: Is the TRC a guarantee of reducing taxes?

Ans:

No. It is a very crucial document. But, if the Assessing Officer wants, you may be asked to submit more documents to establish your claim. Thus having the Tax Residency Certificate alone may not be sufficient.

Q: Is obtaining a Tax Residency Certificate mandatory?

Ans:

No. It is not mandatory. But unless circumstances prevent it, there is no reason why a taxpayer will not collect a Tax Residency Certificate.

Q: Can the TRC be filed online?

Ans:

No. The Tax Residency Certificate (TRC) application must be submitted in Form 10FA at the Income Tax Office manually.

Q: What is a Residence Country?

Ans:

A Residence Country is a country in which you have been deemed a resident. India is ruled by Section 6 of the Income Tax Act 1961.

Q: What is a Source Country?

Ans:

A Source Country is the country from where your income is earned and received.

Q: What happens when you have been taxed in both countries?

Ans:

No need to worry if you have not submitted the Tax Residency Certificate and have paid tax on income in two places. All is not lost. In your Income Tax Returns, you can file for a refund by submitting the relevant documents, and the amount will come back to you after the completion of the assessment.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.