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Tax Residency Certificate (TRC): Why It is Important for NRIs
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Without a valid TRC, tax may be deducted at the higher domestic rate (up to 30%) instead of the concessional rates under the DTAA.
Submit the TRC to the income payer (like your bank, employer) to avail concessional tax rates at the time of tax deduction. Alternatively, you can submit it to the Income Tax Department while filing your tax returns.
While not mandatory, consulting a local tax expert can simplify the application process and ensure all requirements are met.
No, the TRC allows you to claim reduced or concessional tax rates as per the DTAA. The exact rate depends on the treaty between India and your resident country.
A valid TRC can be used for all income streams taxable in India where DTAA applies, such as dividends, interest, royalties, and capital gains.
Yes, a TRC has a limited validity and is issued for a specific tax year. The applicable period depends on the country. Some countries follow the calendar year (January 1 to December 31), while others including India follow a financial year (April 1 to March 31).
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
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Brief Background
In today’s globally connected world, many Indians have established lives and careers overseas while still maintaining financial ties to India. Whether it's investing in property, holding bank accounts, or earning income in India, Non-Resident Indians (NRIs) often encounter complexities in cross-border taxation.
To avoid double taxation — being taxed on the same income in both India and the country of residence — India has signed Double Taxation Avoidance Agreements (DTAAs) with more than 90 countries. A key document required to avail the benefits under these treaties is the Tax Residency Certificate (TRC). This certificate acts as legal proof of tax residency in a foreign country and is essential for ensuring that NRIs receive the tax reliefs they’re entitled to.
What is a TRC?
A Tax Residency Certificate (TRC) is an official document issued by the tax authority of the country where an individual is a tax resident. It certifies that the person is a resident of that country for tax purposes during a specific period.
In India, the Income Tax Act, 1961 mandates that anyone (including NRIs) seeking relief under a DTAA must obtain a TRC from the relevant authority of their country of residence and submit to Indian tax authorities for appropriate benefits.
The following details are generally mentioned in the TRC:
Benefits of TRC
1. Avoidance of Double Taxation
TRC enables NRIs to claim tax relief under the Double Taxation Avoidance Agreement (DTAA), helping them avoid being taxed on the same income in both India and their country of residence.
2. Reduced Tax Deduction at Source (TDS)
Option 1: Submit TRC to the Payer for Lower TDS
If you want to benefit from a lower tax deduction at source (TDS), you can submit your TRC directly to the payer of income in India. This will enable the payer to examine eligibilty for availing DTAA benefit and accordingly, consider withholding tax at the concessional DTAA rate rather than the higher rate under Indian tax laws.
Example:
If Mr. Rahul, a resident of the United Arab Emirates (UAE), earns dividend income from shares held in Indian companies, he can submit his TRC to the company or intermediary responsible for distributing the dividends. Instead of deducting tax at 20% (as per Indian domestic law), basis the TRC, the payer will evaluate the eligibility to avail relief of the concessional tax rate of 10% for TDS, as specified under the India–UAE DTAA.
Option 2: Claim TRC Benefit While Filing Tax Return
If you haven’t submitted the TRC to the payer during the year, you can still claim the DTAA benefit at the time of filing your Income Tax Return (ITR) in India. In this case, any excess tax withheld can be claimed as a refund.
From FY 2023–24 onwards, it is mandatory for NRIs claiming DTAA benefits in their ITR to also file Form 10F electronically, along with the TRC, through the Income Tax portal to avoid rejection or disallowance of the DTAA claim.
Eligibility Criteria to Obtain a TRC
The eligibility to obtain a TRC primarily depends on the laws of the foreign country where the NRI resides. While specific requirements may vary from country to country, the following are general criteria considered by most jurisdictions.
The tax residency is often evaluated using broader parameters that assess the applicant’s overall connection with the country.
Things to Keep in Mind to Apply for TRC
1. Validity Period
TRC is generally valid for specific Period. Therefore, timely renewal and submission of fresh TRC is crucial to ensure uninterrupted access to tax benefits and to avoid any compliance issues.
2. Additional Documentation – Form 10F
While furnishing a Tax Residency Certificate (TRC) is mandatory to claim tax treaty (DTAA) benefits in India, the TRC issued by the country of residence may not always include all the details required by Indian tax authorities—such as
In such cases, you are required to submit Form 10F to provide the missing information. As per the recent notification by the Central Board of Direct Taxes (CBDT), Form 10F must now be filed electronically through the Income Tax Department’s e-filing portal.
3. Language of TRC
If the TRC is issued in the local language of the country of residence, it is advisable to obtain a certified English translation to ensure smooth processing and acceptance by Indian tax authorities for claiming DTAA benefits.
How to File a TRC Application
Each country has its own process and procedure to obtain TRC. Therefore, it is advisable to consult a qualified tax professional or advisor in your country of residence to understand the specific procedures, steps involved and documentation required for obtaining a TRC.
Conclusion
For NRIs, a Tax Residency Certificate (TRC) is more than just a formality — it is a crucial document that ensures proper tax treatment, facilitates financial planning, and upholds compliance with international tax laws. Given its role in availing DTAA benefits and optimizing tax liabilities, NRIs are encouraged to obtain a TRC annually and use it proactively in all financial dealings involving India.
If you're an NRI engaging with the Indian financial ecosystem — be it through investments, or property — make sure you prioritize getting your TRC. It’s a small step that brings big relief.
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