A Tax Residency Certificate (TRC) is an official document issued by a country's tax authority to confirm an individual's or entity's tax residency status for a specific period. It serves as proof that the holder is considered a tax resident of that country, which is crucial for claiming benefits under Double Taxation Avoidance Agreements (DTAAs) and ensuring compliance with international tax regulations.

Importance of a Tax Residency Certificate

1. Avoidance of Double Taxation - A TRC helps prevent the same income from being taxed in both the source country and the country of residence. By providing evidence of tax residency, individuals and businesses can claim relief under DTAAs, ensuring they are not taxed twice on the same income.
2. Access to Tax Treaty Benefits - With a TRC, individuals and entities can avail themselves of reduced withholding tax rates on specific types of income, such as dividends, interest, and royalties, as stipulated in DTAAs between countries.
3. Simplification of Cross-Border Transactions - For businesses and individuals engaged in international trade or investment, a TRC serves as proof of tax residency, facilitating smoother financial transactions and reducing the risk of disputes with foreign tax authorities.
4. Enhanced Credibility and Compliance - Holding a TRC enhances an individual’s or business's credibility with foreign tax authorities and financial institutions, promoting transparency and compliance with international tax laws.

Example: Imagine you're an Indian citizen working in the United States. You earn income in both countries. Without a TRC, you might be taxed on the same income in both countries. By obtaining a TRC from the U.S. tax authority, you can prove your U.S. tax residency and claim tax benefits under the DTAA between India and the U.S., potentially reducing your overall tax liability

How to Obtain a Tax Residency Certificate in India

In India, the process to obtain a TRC involves the following steps:

1. File Form 10FA - Submit Form 10FA on the Income Tax Department’s online portal. This form is essential for individuals and entities seeking to claim tax treaty benefits.
2. Provide Necessary Documentation - Along with Form 10FA, submit supporting documents such as:
   • Passport copy
   • Tax returns of the previous financial year
   • Proof of residency (e.g., utility bills, bank statements)
   • Tax Identification Number (TIN) or PAN (if available)
3. Obtain the TRC - Upon verification of the application and documents, the Income Tax Department will issue the TRC, confirming the applicant's tax residency status for the specified period.

How to Obtain Tax Residency Certificate for NRIs?

NRIs need to obtain a tax residency certificate from the foreign country’s authorities or the country in which they are a resident. They need to provide the following details:

• Name of the taxpayer
• Assessee’s status (individual, firm, company, etc.)
• Aadhaar number of Permanent Account Number (PAN)
• Nationality (in case of individual taxpayers) or country/country of registration (for others)
• Tax Identification Number (TIN) of the assessee
• Period of residential status as present under Section 90 (4) or Section 90A (4).
• Assessee’s address in the country outside India.