How to Obtain a Tax Residency Certificate: A Step-by-Step Guide

Managing international taxation is difficult, particularly for those who receive income from more than one country. However, a Tax Residency Certificate (TRC) is helpful in such situations as it enables individuals and companies to avoid double taxation under DTAAs.

Follow this step-by-step guide to acquiring the TRC, which will help you prove your tax residency status and, thus, minimise your taxes in different jurisdictions.

What is a Tax Residency Certificate and How to Obtain TRC in India?

A Tax Residency Certificate, commonly called a TRC, is an official document signed by a specific country’s tax authority that certifies an individual or entity’s tax residency status for the particular fiscal year. The Income Tax Department provides TRCs in India to relieve taxpayers from double taxation under DTAAs.

To Obtain a TRC in India:

• Comply with the Indian income tax rules and get the Resident and Ordinarily Resident (ROR) status in India.
• Apply to the Income Tax Department.
• Provide essentials such as proof of place of residence and formal proof of income details.
• Take the Income Tax Department’s acknowledgement and wait for the department to process the documents and issue the certificate.

For Non-Resident Indians (NRIs) Seeking a TRC:

• Go to the tax authorities in your country of residence.
• Provide the required information, which includes full name, status, PAN or Aadhaar number, nationality, length of residency, and correspondence address.
• If the foreign TRC does not contain the required details, file Form 10F with further particulars.
• Renew the TRC annually before the financial year ends to enable continued realisation of the DTAA benefits.

Types of Resident in Income Tax

The Indian Income Tax Act divides individuals into three groups of residents based on the number of days they spend in the country. Here are the criteria that are used to classify individuals based on their days spent in India.

1. Resident and Ordinarily Resident (ROR)

• Presence over 182 days in a fiscal year in India.
• If they spend 730 days or more in India within the seven years preceding the current fiscal year.
• If they have stayed for 730 days or more during the preceding seven years.

2. Resident but Not Ordinarily Resident (RNOR)

• If they lived in India for 730 days or more in the previous fiscal year.
• If they stayed in India for at least two out of ten days in the previous fiscal year.

3. Non-Resident (NR)

• If they stay in India for fewer than 182 days in a fiscal year.
• Stay for 60 days or more (with some exceptions, which allow up to 181 days) and less than one year in the last 4 financial years.

Benefits of Tax Residency Certificate (TRC)

The following are some of the advantages of the Tax Residency Certificates (TRCs):

• Prevention of Double Taxation: DTAA benefits are provided to the taxpayers through TRCs so that the income is taxed and paid only in the contracting party’s jurisdiction.
• Access to Tax Treaty Benefits: It allows individuals and companies to take advantage of lower withholding tax rates on certain forms of income.
• Tax Compliance: TRC serves as an essential proof of an individual’s tax residency status when filing returns and dealing with financial institutions.
• Streamlined Administration: Minimises chances of disagreement with international tax bodies over tax procedures since it consolidates taxes for multinational entities.
• Enhanced Transparency: Creates tax residency status, making international business transactions more accessible and of better credibility.

Tax Residency Certificate Requirements

To obtain a Tax Residency Certificate (TRC), applicants must meet the following key requirements:

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Steps to Obtain a Tax Residency Certificate in India?

The process which is followed to acquire the Tax Residency Certificate in India is described in this section below:

• To get a Tax Residency Certificate in India, an application in Form 10FA has to be sent to the Income Tax Department. This form needs detailed information about the person and his/her financial situation to determine the tax resident status.

• The next step the applicant has to go through is an assessing officer, who checks the details provided by the applicant and may call for some supporting documents. If satisfied with the application, the officer grants the TRC in writing using form 10FB, certifying the applicant as a tax resident in India.

• The time taken to process a TRC application may differ; however, it may take approximately two to three weeks. Candidates should consider the need for the certificate, especially if it is required for specific financial periods or activities.

• All TRCs are issued for one financial year, and the DTAA benefits must be applied for afresh every year. This eradicates any possibility of the tax residency status being outdated or incorrect.

• The Income Tax Department may submit TRC applications via the Internet and other electronic means. According to the current trend, applicants must visit the official website to check the application methods and requirements.

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Process to Obtain a Tax Residency Certificate for NRIs?

Any citizen who desires to avail benefits of the Double Taxation Avoidance Agreement (DTAA) provisions must secure a Tax Residency Certificate (TRC) from his country of residence.

1. Apply to Foreign Authorities

Contact the local tax authorities where you permanently reside. Provide details like:

• Name, Assessee Status, Aadhaar/PAN (if applicable)
• Nationality or Country where authority for registration was obtained
• Tax Identification Number (TIN)
• Duration of residential status under Section 90(4)/90A(4)
• Address in a foreign country

2. Form 10F

If the TRC is missing information, you can fill out Form 10F while filing taxes in India.

3. TRC Renewal

To take advantage of DTAA’s benefits, you are advised to renew your TRC before the end of the financial year. Provide all the required documents as early as possible, as depending on the country, it may take some time.

Obtaining a Tax Residency Certificate is crucial for individuals and businesses to avoid double taxation and take full advantage of international tax treaties. Just like understanding the nuances of TRC is important, finding a home that suits your lifestyle is essential. Explore Rustomjee residential properties to find your perfect living space today.

FAQs

1. How long is a Tax Residency Certificate valid for?

A tax residence certificate is valid until the end of the financial year following its issuance. Thus, to avail themselves of the DTAA treaty benefits, the assessees must apply yearly.

2. Can a Tax Residency Certificate be renewed?

Taxpayers can also renew their tax residency certificates before the end of the financial year to continue benefiting from the treaty in DTAA. This can be achieved by filing the new documents and other procedures required for income tax renewal.

3. Can I use a Tax Residency Certificate in all countries?

No, a Tax Residency Certificate is valid only for the country that issued it and is usually used only to claim relief under the DTAA between the issuing country and another country.

4. Can individuals and companies both apply for a Tax Residency Certificate?

Yes, the criteria for qualifying for a TRC are provided for both individuals and business entities.

5. Is a Tax Residency Certificate the same as a Tax Identification Number (TIN)?

No, a Tax Residency Certificate shows that an individual is a tax resident in a particular country or jurisdiction. At the same time, the tax authorities issue a Tax Identification Number to track the tax-related activities of individuals or business firms.