Tax Residency Certificate
A Tax Residency Certificate (TRC) is an official document issued by the tax authority of a foreign country or by the Indian government, certifying that the holder is a tax resident of that country in the relevant period — a mandatory requirement under Section 90(4) of the Income Tax Act for any non-resident seeking to claim Double Tax Avoidance Agreement benefits in India.
The requirement for a Tax Residency Certificate was introduced into the Income Tax Act through Section 90(4) by the Finance Act 2012, operative from Assessment Year 2013–14. Before this amendment, NRIs and foreign entities could claim DTAA benefits based on residency documentation from their home countries without a formal TRC requirement, which led to cases where entities obtained treaty benefits without genuine residency in the treaty country.
A TRC from a foreign country must contain specific details: the name of the taxpayer, the taxpayer's status, their nationality or country of incorporation, their tax identification number in the country of residence, the residential status for the relevant period, and the period for which the TRC is valid. If the TRC does not contain all of these details, the taxpayer must additionally submit a self-declaration in Form 10F.
Form 10F was originally a physical form, but the CBDT mandated online filing of Form 10F through the income tax e-filing portal from November 2022. This created practical challenges for non-residents who do not have a PAN but require DTAA benefits on investment income, leading to a series of relaxations and exemptions issued through CBDT circulars in 2022–23.
For Indian residents going abroad and claiming to have changed their tax residency (e.g., relocating to a zero-tax jurisdiction), the TRC from the new country may be required to claim treaty benefits. The income tax department examines TRC claims carefully in cases where the individual appears to have maintained substantive economic ties with India, especially in the context of Section 6 of the Income Tax Act which governs the conditions for residential status.
For portfolio investors (FPIs) and foreign institutional investors, the TRC is an annual compliance requirement that must be filed with their custodian banks and depositories. The custodian applies the appropriate DTAA withholding tax rate on dividends and other Indian-source income based on the TRC. Failure to furnish a valid TRC results in deduction of withholding tax at the higher of the domestic rate or the treaty rate.