What is Tax Residency Certificate?
A Tax Residency Certificate (TRC) is a document provided by a country’s tax authorities to a taxpayer who is a resident of that country for the purpose of claiming advantages under the countries’ Double Taxation Avoidance Agreement (DTAA). It confirms that the individual named in the document is a tax resident of that country.
Tax Residency Certificate Importance
The significance of a Tax Residency Certificate resides in its ability to prevent income from being taxed twice. The certificate enables the taxpayer to claim benefits under the two-country DTAA. The DTAA is a bilateral agreement between two countries to avoid double taxation of income, and the TRC assists in assessing the taxpayer’s tax due in both countries.
Income Types Covered
The following types of income are covered by the TRC:
- Immovable property income
- Profits from business
- Earned salary in a foreign nation
- Dividends received from Shares and other Funds
- Fixed deposit and savings bank account interest
- Capital gains
Income Tax Act of 1961 TRC Certificate
A Tax Residency Certificate is required by the Income Tax Act 1961 for a taxpayer to claim benefits under the DTAA. The TRC validates the taxpayer’s residential status and must be given to the tax authorities together with the tax returns.
Form10FA – Obtaining a TRC Certificate
A taxpayer in India must fill out and submit Form 10FA to the tax authorities in order to obtain a TRC Certificate. The form requests personal information from the taxpayer, such as name, address, and PAN card information. The form also requests information on the TRC’s aim, such as the type of income and the countries involved.
TRC for Indian Resident Taxpayer
An Indian resident taxpayer must complete and submit Form 10FA to the Indian tax authorities in order to acquire a TRC. The form requests personal information from the taxpayer, such as name, address, and Permanent Account Number (PAN) card information. The form also requests information on the TRC’s aim, such as the type of income and the countries involved.
TRC for Non-Resident Taxpayer
To get a TRC, a non-resident taxpayer must follow the procedure outlined by the tax authorities of the nation in which they reside. The procedure varies by country, but it usually includes the following steps:
- Contact the tax authorities in the nation where you live to learn about the TRC application process.
- Submit the appropriate documentation in accordance with the process outlined by the tax authorities. Proof of residency, such as a tax return or a certificate of residency, is frequently included with the paperwork.
- Wait for the tax authorities to issue the TRC. The time it takes to issue a TRC differs based on the jurisdiction and the tax authorities’ workload.
- Once the TRC is issued, submit it to the Indian tax authorities along with the tax returns in order to obtain DTAA benefits.
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Tax Residency Certificate Format
The tax authorities in India regulate the structure of the Tax Residency Certificate, which includes the taxpayer’s name, address, and PAN card information. It also includes information on the countries’ tax treaties and the type of income for which the TRC is being issued.
Form 10F is the form that must be completed in order to receive a TRC in India. It asks the taxpayer to supply information such as their name, residence, and PAN card number. It also necessitates information on the nations covered by the tax treaty, the type of the income, and the length of stay in India.
Form 10F information requirements
The following information is required on Form 10F:
- The taxpayer’s name, residence, and PAN card number
- Details about the nations that have signed the tax treaty
- The type of income for which the TRC is issued
- The duration of stay in India
Benefits of a Tax Residency Certificate
The following are the benefits of obtaining a Tax Residency Certificate:
- It assists in avoiding income taxation multiple times.
- It clarifies the taxpayer’s tax liability in both nations.
- It helps in obtaining benefits under the DTAA between the countries.
- It offers a clear picture of the taxpayer’s residential status for tax purposes.