This article is basically based to create awareness that whether tax residency certificate mandatory to claim benefit under tax treaty This article is all about tax residency certificate to claim benefit under double taxation avoidance agreement.

Agreement with Foreign Countries to avoid double taxation

1)      The Central Government may enter into an agreement (Double Taxation Avoidance Agreement) with any foreign government for granting of relief in respect of:-

a)      Income on which tax have been paid both under this Act and in the other country or specified territory as the case may be

b)      Income chargeable under this act and under the corresponding law in force in that country as the case may be to promote mutual economic relations, trade and investment

c)       For the purpose of avoidance of double taxation of income

d)      For exchange of information for the prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country.

e)      For recovery of income tax under this Act.

2)      In relation to the assessee to whom such agreement applies, the provisions of the I.T. Act shall apply to the extent they are more beneficial to that assessee.

3)      Section 90(3) empowers the Central Government to define a term which is not defined in the Act or the agreement by way of a notification.

 

Tax Residency Certificate Requirement

An assessee, not being a resident, to whom a DTAA applies, shall not be entitled to claim relief under such agreement unless a Tax Residency Certificate, containing such particulars as may be prescribed, is obtained by him from the Government of that country or specified territory.

 

The new provision of requirement of TRC has become applicable from 1^st April 2012 onwards.

If the TRC is not produced by the foreign payee parties, the assessee would not be able to apply beneficial provisions of the DTAA, if any and the tax cost would increase or the payer will have to pay higher taxes.

 

Sub Rule – 1

The certificate referred to in sub section (4) of section 90 and sub section (4) of section 90A to be obtained by the assessee not being a resident in India, from the Government of the country or the specified territory shall contain the following particulars:-

Sl.No.	Particulars	Details
1	Name of the assessee
2	Status
3	Nationality
4	Country or specified  territory of incorporation
5	Residential status for the purpose of tax
6	Period for which the certificate is applicable
7	Address of the applicant for the period for which certificate is applicable

 

Sub Rule – 2

The certificate referred to in sub rule (1) shall be duly verified by the Government of the country or the specified territory of which the assessee , referred to in sub rule (1) , claims to be a resident for the purpose of tax .

Thus in all the such cases where the beneficial provisions/tax rates under DTAA are applicable , the Indian payer party must seek the TRC from the nonresident party .

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