• The Government of India, vide the Finance Act, 2012, introduced a provision under the Income-Tax Act, 1961 (IT Act) which required a non resident taxpayer to mandatorily furnish a Tax Residency Certificate (TRC) in the prescribed format for claiming relief under the Double Taxation Avoidance Agreement (DTAA) entered into between India and the country of residence of such a taxpayer. The TRC, to be obtained from the government of the country of residence of the non-resident taxpayer, is necessary but not a sufficient pre-condition to avail benefits under the relevant DTAA.
• In this connection, the Central Board of Direct Taxes (CBDT) has now notified a new rule (Rule) in the Income Tax Rules, 1962, vide Notification No 39 dated 17 September 2012, prescribing the particulars to be mentioned in the TRC which the government of the country of residence of the non resident taxpayer would issue. Interestingly, though the provisions of the IT Act did not provide for a format to furnish the TRC by an Indian resident taxpayer for claiming a DTAA benefit, the CBDT in the Rule has also specified a format and procedure for the TRC to be obtained by a resident.
• The Rule applies to any person claiming relief under the DTAA including residents and it comes into force on 1 April 2013 (Financial Year 2012-2013).
• This ERGO Newsflash discusses the important parameters laid down by the CBDT in relation to the format and procedure for obtaining a TRC by both residents and non residents.
For Non Residents
The Rule does not provide for any specific format of the TRC in case of a non resident taxpayer. However, it provides that the TRC issued by the government of the country of residence of the non resident taxpayer should contain the following information:
• Name of the taxpayer;
• Status of the non resident taxpayer (viz whether the taxpayer is an individual, company, firm etc.);
• Nationality in the case of individual taxpayers or country or specified territory of incorporation or registration in the case of other taxpayers;
• Tax identification number of the taxpayer in the country or specified territory of the taxpayer’s residence. In case there is no such tax identification number then, a unique number on the basis of which the taxpayer is identified by the Government of the country of residence of the taxpayer;
• Residential status for the purposes of taxation;
• Period for which the TRC is applicable; and
• Address of the taxpayer for the period for which the TRC is applicable.
• The prescribed form is Form 10FA.
• In addition to details such as name, status, nationality / country of incorporation, address, email ID, Permanent Account Number (i.e. PAN), Tax Deduction Account Number (i.e. TAN), the Form requires the applicant / taxpayer to state the purpose of obtaining the TRC as well as the period for which the TRC is requested. A resident taxpayer is also required to provide documentary evidence supporting its claim for being a tax resident of India.
• The Tax Authorities on receipt of the above Form and on being satisfied about the details provided and required for the TRC, are required to issue the TRC in a separate form (viz Form 10FB).
• The contents prescribed in the TRC for a non resident are rather simple and straightforward and they don’t appear to encroach upon the sovereign authority of any jurisdiction in this regard. Most of the particulars prescribed are similar to those found in the TRCs currently being issued by countries such as Mauritius.
• The requirements for a resident to obtain TRC seem to be quite interesting. It appears that the intention here is to streamline the process for claiming credit for the taxes paid by a resident in another jurisdiction.
• Though the much awaited requirements for claiming benefits under a DTAA have now been made available, however, since TRC is not the only pre-condition to avail benefits under the relevant DTAA, a non resident would still need to satisfy the Tax Authorities on other elements such as genuineness of the transaction, no round tripping, etc., to claim the benefits under the DTAA.