India has entered into double-taxation avoidance agreements with many countries to provide relief to taxpayers who qualify as tax residents of other countries. For example, tax residents of the other country can claim certain tax exemptions in India, subject to fulfilling the relevant conditions under the treaty.
The Finance Act 2012 made it mandatory for non-residents to produce a tax residency certificate (TRC) from the country of tax residence, with details to be prescribed if such individuals wish to avail of treaty benefits in India.
The requirement was introduced with respect to income arising during the year ended March 31, 2013, and subsequent years. The rationale of introducing this requirement, as stated, was to ensure that taxpayers who are not residents of the relevant treaty country (for example, residents of a country with which India may not have a tax treaty) do not claim unintended treaty benefits.
Subsequently, the details required in the TRC were notified by the Central Board of Direct Taxes (CBDT) in September 2012 — these included residential status of the applicant for tax purposes, nationality (in case of an individual), etc. The TRC was also required to be verified by the government of the country of residency.
However, taxpayers generally face some practical challenges in obtaining a TRC from the government of the overseas country. For example, many countries have their own TRC formats (which may not contain all the details prescribed by the CBDT).
In the Finance Act 2013, while the requirement of the TRC has been retained, the TRC issued by the other country need not necessarily contain the prescribed details. Instead, non-residents are required to provide certain information to be prescribed. On August 1, the CBDT has prescribed the format in which such additional information needs to be provided by the taxpayer (in Form 10F).
These details are similar to those required as part of the TRC under the earlier provisions, such as PAN (if allotted), nationality, tax identification number in the country of residence, etc. However, if such details are already provided in the TRC, they may not be required to be provided