Under law, identity or recognition of a person is established by relevant documents mentioned under those laws. For example passport establishes citizenship; Aadhar Card establishes residency for the purpose of government subsidies and benefits. In the same way, residency under direct tax laws is established by “Tax Residency Certificate” also known as “TRC”.
In one of the previous article about Foreign Tax Credit (FTC), published on taxguru.in dated 30th March, 2021, it was discussed how FTC can be availed, the requirements and the benefits. In this article more light will be shed on how TRC is recommendable in availing FTC.
Tax Residency Certificate is a certificate issued by the Income Tax Department to the Indian Residents who earn income from countries with which India has a Double Taxable Avoidance Agreement (DTAA). The certificate is submitted to the payer (that is a foreign entity with whom the transaction is entered into) so that the foreign entity may pass on the benefits under DTAA to the Indian Residents.
Though TRC is a document which is not a prerequisite for claiming the credit of foreign taxes under Income Tax Act, 1961 (Act), it is increasingly becoming an imperative document due to its demand made by the foreign entities who wants to be cautious and wants the identity of the counter party (that is the Indian Resident) to be vouched by independent government authority.
Benefits of TRC:
Pre-requisites to obtaining TRC:
An application for obtaining TRC needs to be done in Form 10F/10FA to the
Jurisdictional Assessing Officer. The information required in Form 10F/10FA is:
In case, the Application is made by a person resident in India, the applicable form is Form
10FA. In case of a non-resident, it shall be in Form 10F .
Assessing Officer on receipt of such application along with all information mentioned
above, being satisfied in this behalf issues a TRC in Form 10FB.
Practical Scenario:
Other Points:
Where any taxpayer, being a resident of India, is aggrieved due to DTAA or due to any of the tax authorities of any country or specified territory outside India for the reason that, according to him, such action / rules of agreement will result in loss, such taxpayer may make an application to the Central Board of Direct Taxes seeking to invoke the Mutual Agreement Procedure, if provided in DTAA.
In such case, CBDT shall demand requisite documents which shall include TRC as well. Accordingly, in order to make such the relief applications more genuine, TRC is required.
Conclusion:
TRC being the proof of residence is mandatory when it comes to availing benefits of DTAAs and recommendatory in case of FTC and foreign remittances. However, with the ever increasing complexities and volume of transactions in cross country sector, TRC should evolve from just a complimenting document to a role playing document.
(This article represents the views of the authors only and does not intent to give any kind of legal
opinion on any matter).
Authors:
Rishabh Jain
Associate Consultant | Email: rishabh.jain@masd.co.in
Soham Dongre
Associate Consultant | Email: soham.dongre@masd.co.in