What is a TRC(Tax Residency Certificate)?

A Tax Residency Certificate (TRC) is an official document issued by a country’s tax authority. It proves that a person or business is a tax resident of that country. This is also known as a Certificate of Tax Domicile.

Why is a TRC Important for NRIs?

India has agreements with over 90 countries to avoid double taxation. This means your income won’t be taxed both in India and in the country where you live. To get this benefit, NRIs need to submit a Tax Residency Certificate (TRC) from their country of residence.

Who Can Obtain a Tax Residency Certificate(TRC)

A Tax Residency Certificate is obtained by:

1. Individuals:

• Indian residents earning foreign income.
• Non-residents claiming tax relief in India

2. Businesses & Entities

• Companies registered in India with foreign transactions.
• Partnerships and LLPs engaged in cross-border trade.
• Trusts and other organizations needing tax benefits under DTAA.
  

3. Other Entities

• Any taxpayer registered in India with foreign income or tax liabilities.

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What Should a Valid TRC Contain?

The TRC must include the following details:

• Name of the applicant.
• Status of the Individual or Company
• Nationality (for individuals)
• Tax Identification Number
• Residential status for tax purposes
• Period for which the certificate is applicable
• Address of the applicant during the said period

Common Challenges Faced by NRIs

The probable issues while applying for TRC that may arise are:

• Delay in issuance from foreign tax authorities.
• Misunderstanding of DTAA provisions, leading to incorrect filings.
• Mismatch of tax years (India follows April–March, while others follow calendar year).
• TRC not containing all mandatory details as per Indian law.

Benefits of a Tax Residency Certificate for an Indian Entity

For Individuals:

• Avoids Double Taxation: Helps prevent income from being taxed in both India and a foreign country.
• DTAA Benefits: Enables individuals to claim tax relief under Double Taxation Avoidance Agreements (DTAAs).
• Lower Tax Rates: Allows reduced tax rates on foreign income as per treaty provisions.
• Proof of Tax Residency: Establishes Indian residency for tax purposes when dealing with foreign tax authorities.
• Ease in Financial Transactions: Facilitates international investments and banking transactions.

For Businesses:

• Tax Exemption & Relief: Reduces or eliminates tax on foreign income under DTAAs.
• Prevents Double Taxation: Ensures business income is not taxed twice in different countries.
• Enhances Global Operations: Helps Indian companies expand internationally by reducing tax burdens.
• Improves Compliance: Provides official proof of tax residency, simplifying cross-border tax matters.
• Attracts Foreign Investment: Makes Indian businesses more tax-efficient and appealing to global investors.