Tax Residency Certificate

Tax Residency Certificate

Have you made some foreign income during the financial year? Then you might have paid a significant amount of tax in that country from your foreign income. Tax Residency Certificate (TRC) can help you avoid paying double taxes on your earned income in the country you reside in and in India.

TRC is issued under DTAA. So, it is very important to know about DTAA before understanding TRC.

DTAA or Double Taxation Avoidance Certificate is a treaty between the country of residence and India and has various benefits for the NRI and other businessmen commencing their business outside the country.

This article will provide you all the important information regarding DTAA, Tax residency certificate its benefits and how to obtain it.

What is DTAA?

DTAA or Double Taxation Avoidance Certificate is simply a treaty signed between two countries to provide some relief to the NRIs regarding multiple taxation system. The main objective behind it is to attract more business opportunities in the proposed country and provide some tax benefits to the NRIs commencing business activities in such countries.

However, DTAA does not provide complete taxation relief to the NRIs but helps them to avoid paying a heavy amount of taxes in both countries. It basically helps the NRIs by lowering down tax implications on their income earned in India and also reduce the circumstances of tax evasion.

What is the Tax Residency Certificate?

As per the Double Taxation Avoidance Certificate, certain tax benefits are provided to the NRI and to avail all those benefits they have to obtain the Tax Residency Certificate from their country of residence. NRIs can easily avail it from the respective Tax department of their country where they reside.

TRC or Tax residency certificate is quite beneficial for them to reduce the multiple tax burden imposed on their hard-earned money and therefore, should contain mandatory information such as:

  • Name of the taxpayers
  • Working status of the taxpayer such as firm, individual, company, etc.
  • Residential Address of the taxpayer
  • Nationality
  • Country
  • Tax Status
  • Tax Identification Number of the taxpayer in the concerned country.
  • Tax period under which the benefits of DTAA has to be claimed. 

What are the benefits of a Tax Residency Certificate?

Tax advantages always work well to attract NRI to start their business activities in India. Similarly, there are various advantages of Tax Residency Certificate that are given as follows:

  • Under these NRIs are relieved from the stress of double taxation and find that country best to invest their money and start the business.
  • It exempts the taxes on the income earned from a foreign country in the resident country.
  • Concessional tax rates are offered to the taxpayer.
  • Creates transparency and clarity in the investment made by the NRIs

Apart from it, Tax residency certificate has income benefits under which the NRIs don’t have to pay twice taxes on the below-given incomes:

  • Any type of income saved in the savings bank account in India
  • Income saved in fixed deposit in India
  • Income from capital gains in India
  • Income received in the form of a salary in India.
  • Income from immovable property in India.
  • Income from the services furnished in India. 

How to obtain a Tax Residency Certificate?

To avail of all the benefits offered under DTAA or Double Taxation Avoidance Agreement, the applicant has to obtain the tax residency certificate mandatorily. No other document despite Tax residency certificate would be considered to avail of all the benefits under the DTAA. So, it becomes very important for the NRIs to obtain their TRC during the starting of every financial year. Here are the steps to obtain the Tax Residency Certificate:

Step 1: Find your nearby Assessing Officer through the official e-filling website.

The applicant may require visiting the Assessing Officer 2- 3 times for the submission of application and documents.

Step 2: Create a sheet explaining your movement:

Thereafter, the taxpayer has to make a document that should contain all the information regarding his movement in and out of the country through his/her stamped passport. The documents must clearly show days spent in a foreign country and in India for that Financial Year.

Step 3: Download the Form 10F

Form 10F is used to apply for obtaining a Tax Residency Certificate. The applicant can download it from the official website of the Tax department of the concerned country.

Step 4: Fill in details:

Once you have downloaded the form, it would require some important details, including the Name, Status, PAN number, and Address of the applicant.

Step 5: Submission of the Application:

Once you have filled the application, you have to submit it physically to the Assessing Officer. Make sure to attach a Xerox copy of your passport along with marked stamps of arrivals and departures.

Step 6: Issuance of Certificate:

Once you have submitted the application, it would be further verified by the assessing officer. You may also require visiting his/her office to discuss the application. Once he/she has verified the application and is satisfied with it, the applicant will be granted a Tax Residency Certificate.

Summary:

Tax Residence Certificate is the only documents that could be used to avail of the benefits under the DTAA. A person can avail it easily by filling the application in prescribed form 10F and submitting it to the Assessing Officer along with his passport copy.