How to Get a Tax Residency Certificate (TRC) in India

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With the ever-increasing interconnectedness in the world today, tax residency is important in defining your tax liabilities as well as tax advantages. You could be someone who gets their income from outside the country or a company trading globally, and tax residency remains just vital to you regardless. A Tax Residency Certificate (TRC) becomes a vital option in such situations.

This article will explore what a tax residency certificate is, why it's important, who requires it, and how to get tax residency certificate in India, along with valuable tips so that the application process goes smoothly.

What is Tax Residency Certificate (TRC)?

A tax residency certificate, sometimes referred to as a certificate of residence for tax purposes or certificate of tax domicile, is a legal document released by the tax department of a country. It certifies an individual or organization as a resident of that country for taxation purposes for a specific financial year.

The TRC serves as proof of your taxpayer residence certificate status and helps establish your eligibility for various tax benefits under domestic laws and international agreements.

Importance of Tax Residency Certificate

The TRC is vital for several reasons:

• Avoidance of Double Taxation: It helps taxpayers avoid being taxed twice on the same income in two different countries by enabling them to claim benefits under Double Taxation Avoidance Agreements (DTAA).
• Lower Withholding Tax Rates: Many countries offer reduced tax rates on dividends, interest, royalties, and other income if you provide a valid TRC.
• Proof of Residency: It acts as official evidence of your tax residency status, which is often required by foreign tax authorities, banks, and financial institutions.
• Tax Refunds and Credits: The TRC can be used to claim refunds or credits for taxes paid abroad.

Who Needs a Tax Residency Certificate?

A wide range of individuals or groups might need a TRC, and for a variety of purposes:

• Individuals earning income in multiple countries
• Non-Resident Indians (NRIs) who want to claim DTAA benefits
• Businesses and companies operating internationally
• Investors with foreign assets or income
• Anyone facing potential double taxation issues

Benefits of Obtaining a TRC Certificate

Obtaining a tax residency certificate gives you access to a number of perks:

• Reduced tax liability through DTAA benefits
• Avoidance of double taxation on cross-border income
• Facilitates smoother international transactions and investments
• Provides credibility and compliance with tax authorities
• Enables claiming foreign tax credits

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Documents Required for TRC Application

To apply for a TRC, you generally need to submit:

• Proof of residence (such as utility bills, rental agreements)
• Passport copy
• PAN card or equivalent tax identification number
• Tax returns filed in the country of residence
• A request letter for tax residency certificate addressed to the tax authority
• Any other documents specified by the tax department

How to Apply for a Tax Residency Certificate in India

The process to obtain a TRC certificate in India involves the following steps:

1. Step 1: Determine Eligibility
   You must qualify as a resident under Section 6 of the Income Tax Act, which generally requires you to stay in India for at least 182 days during the financial year.
2. Step 2: Fill Form 10FA
   This is the application form for requesting a TRC. It requires personal details, PAN, address, and the financial year for which the certificate is sought.
3. Step 3: Submit Supporting Documents
   Along with Form 10FA, submit proof of residence, tax returns, passport copy, and any other required documents.
4. Step 4: Request Letter for Tax Residency Certificate
   Write a formal request letter addressed to the Assessing Officer or the tax authority, stating your intention to obtain a TRC.
5. Step 5: Verification and Issuance
   The tax authorities will verify your documents and residency status. Upon approval, the TRC certificate is issued in Form 10FB.

Validity Period of a Tax Residency Certificate

The tax residency certificate validity usually lasts for a single financial year. Once it expires, you have to apply again if you still need the certificate for tax purposes. It is recommended that you apply for renewal before your existing certificate expires to make sure that your coverage continues in seamless fashion.

TRC and Double Taxation Avoidance Agreement

A TRC is necessary to avail benefits under the DTAA between India and foreign countries. The certificate verifies your tax residence, allowing you to enjoy lower tax rates or exemptions on income such as dividends, interest, royalties, and capital gains. In the absence of a valid TRC, you pay more tax in the source country and miss out on treaty benefits.

Is a PAN Card Proof of Tax Residency?

A PAN card is a unique identification number for taxpayers in India but does not serve as proof of tax residency. While it is essential for filing tax returns and other financial transactions, the tax residency certificate is the official document that certifies your residential status for tax purposes.

How Can NRI Prove Their Tax Residency?

NRIs must obtain a TRC from the tax authorities of their country of residence to claim DTAA benefits in India. Along with the TRC, they may need to submit Form 10F to the Indian Income Tax Department, which provides additional details such as nationality and tax identification number. This combination helps establish their tax residency and avoid double taxation.

Common Mistakes to Avoid During Application

• Submitting incomplete or incorrect documents
• Not applying within the stipulated time frame
• Confusing PAN card with tax residency certificate
• Failing to provide a proper request letter for tax residency certificate
• Ignoring renewal deadlines, leading to lapses in certificate validity
• Overlooking specific country requirements if applying from abroad

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Conclusion

A tax residency certificate is an important paper for someone who has cross-border income or investment. Not only does it prevent double taxation, but also international tax compliance. Knowing what tax residency certificate is as well as how to apply for it can protect you from unwanted tax levies and legal issues.

By adhering to proper application procedure and presenting proper documents, you can easily get your TRC certificate and gain from tax treaty benefits. If you are facing complicated financial situations, having a trusted advisor and professional advice makes a huge difference while managing your tax matters efficiently and confidently. With attractive interest rates, flexibility for international transactions, and priority services catered to NRI needs, DBS Treasures' NRI savings accounts offer a smooth banking experience for NRIs who want to manage their earnings from both India and overseas.