Tax Residency Certificate: 3 Most Common Questions Answered!

The procedure of tax residency certificate was not there under Income tax Act till recently. Finance Act 2012 had introduced the concept of producing tax residency certificate in order to stop the abuse of taking Double taxation avoidance agreement( treaty) benefits by an assessee. Now CBDT has issued notification no 39/2012 dt 17/09/2012 by which the Rule 21AB has been inserted along with two forms 10FA and 10FB.

Who needs to produce tax residency certificate (TRC)?

Any person ( assesse) who desires to take relief u/s 90 or 9O A of the Income Tax Act . In other words, anyone who desires that the relief under Double Taxation Avoidance Agreement (DTAA) is given to him or her , that person needs to produce along with the claim a tax residency certificate of the country of which he claims to be tax resident and desire treaty benefit.

Is there any prescribed form for Tax Residency Certificate to be issued by a country?

No , India has not prescribed any form as the form for such Tax Residency Certificate is prerogative of the country concerned. However, Rule 21AB(1), the TRC issued by foreign countries must contain at least following information

1. Name of assessee
2. Status (i.e Whether Individual, firm or company or trust)
3. Nationality (In case of Individual)
4. Period for which TRC  applicable
5. In case the TRC applicant is other than individual, the name of country or specified territory of incorporation or registration
6. Tax Identification Number or Unique Number of assessee in the country or specified territory
7. Residential status in the country which is issuing certificate
8. Address of the assessee for the period for which TRC is applicable

Can Indians get Tax Residency Certificate from income  tax Department?

Yes, now the Rule 21AB(3) of The I.T Rule provides that a resident assessee should apply for TRC in prescribed form No 10FA . If the A.O is satisfied with the application, he may issue the TRC in Form 10BFB. Two important points needs to be remembered

                No time limit is provided within which TRC must be issued by the A.O

Some basis for claiming to be residents of India must be shown by the applicant

It is true the CBDT still needs to fine tune the rule by inserting a time limit within which Tax Residency Certificate must be issued