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The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of April 15, 2024.

As a Non-Resident Indian (NRI)/Person of Indian Origin (PIO)/Overseas Citizen of India (OCI), may often earn income in multiple countries. Such income may be subject to taxation in the country where income arises (source country) and your country of tax residence (resident country). In such cases, the Tax Residency Certificate (TRC) plays a crucial role in avoiding double taxation of income. This article will detail the critical aspects you must know about a TRC.

 

What is a TRC

A TRC is an official document issued by the resident country's tax authority. This certificate proves the NRIs’ tax residency in a particular country in order to help them avail of the benefits of the Double Taxation Avoidance Agreement (DTAA) between the source country and the resident country for a particular financial year. Though the format of a TRC differs across countries, it typically provides the following details:

  • Name of the taxpayer
  • Nationality
  • Tax Identification Number (TIN) or any unique number issued by the resident country's government
  • Period of residency
  • Address

If the TRC is issued in the local language of the resident country, it is advisable to have an English-translated version of the TRC to claim the benefits.

Did you know?

TRCs have a limited validity and apply to specific tax years, which vary across countries. Some countries follow a calendar year (January-December), while others follow a fianancial year (e.g., India: April-March). Ensure your TRC covers the period for which you seek tax benefits.

Why do you need a TRC?

A TRC is an essential document for NRIs/PIOs/OCIs who earn income in multiple countries and can be leveraged for substantial tax advantages. You require a TRC for:

  • Claiming tax benefits in India:

    As per the Income Tax Act, 1961*, it is mandatory for an NRI to obtain a TRC from thier resident country to claim any relief under DTAA. The relief claimed under DTAA may be disallowed in the absence of a TRC.

    Let's consider the example of Aditi, an NRI residing in the United States (US), who wants to claim the beneficial tax rate available under the DTAA of India (source country) and the US (resident country) for interest income earned in India. Thus , she will need a valid TRC from the US tax authorities to substantiate her claim.

*Sec 90(4)/ 90A (4) of the Income Tax Act

Did you know?

Furnishing a TRC is mandatory to claim any tax treaty benefits in India. The TRC issued by your resident country may not include details required by the Indian government (such as your nationality/TIN/address). In such cases, you are required to furnish Form 10F. While there is no legal deadline to provide a TRC/Form 10F, it is advisable to do so before claiming any tax treaty benefits under DTAA.

  • Avoiding double taxation in other countries

    In cases where income is earned in a country which has a DTAA with your resident country, a TRC can be used as documentary proof of residency. This helps prevent double taxation on the same income. You should get in touch with your local tax expert for more details.

    Let’s take the example of Kritika, an NRI residing in the US. She has dividend income from the United Kingdom (UK) and wants to avail of the beneficial tax rate under the tax treaty between the UK (source country) and the US (resident country). For the same, she will need a valid TRC from the US tax authorities.

Who can obtain a TRC?

Your eligibility to obtain a TRC will depend on the specific tax laws and regulations of your resident country. Some of the key considerations include:

  • Physical presence: The amount of time you physically spend within the country each year.
  • Duration of stay: The length of your continuous stay, potentially exceeding a minimum threshold.
  • Permanent habitation: The country where you have either owned a home or rented premises for living.
  • Centre of vital interests: The country where your personal ties and financial interests are the closest. This considers factors such as your family's residential address, your employment location and the location of your primary financial assets.

For further details, please consult with a tax professional in your resident country.

 

Applying for a TRC

The application process and documentation for a TRC varies from country to country. To obtain a TRC you should:

  1. Verify your tax residential status with the tax authority in your resident country.
  2. Submit a copy of your passport, tax returns and requisite documentation as per local laws.
  3. Complete and submit the application form (available online or in-person) along with the required documents to the relevant tax authority.

After successfuly reviewing and verifying your application, the tax authority will issue the TRC in your name. The TRC will specify your tax residency status and validity period. You must check with a local tax consultant of your resident country to know the right procedures and requirements for obtaining a TRC.

Please note, the rise of global tax transparency initiatives, such as the Common Reporting Standard (CRS), may influence the recognition and exchange of TRC information between countries. NRIs should remain aware of these developments and their potential implications.

Conclusion

A TRC is a valuable document for NRIs/PIOs/OCIs having income across multiple countries. It serves as proof of residence for tax purposes and can be used for availing of tax benefits. A TRC can streamline tax compliance in both the source and resident country. You should consult a local tax professional to leverage the TRC to your advantage.

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