Tax Residency Certificate (TRC) – In its new version

Provisions of requirement of Tax Residency Certificate were introduced last year. The Finance Minister has attempted to make changes to the existing provisions. The author analyses the changes that are proposed and the possible effects.

Prashant Apte

Synopsis- Provisions of requirement of Tax Residency Certificate were introduced last year. The Finance Minister has attempted to make changes to the existing provisions. The author analyses the changes that are proposed and the possible effects.

1.      Introduction.

Claim of treaty benefit by an assessee has always remained fraught with uncertainties and controversies. Till 2012 there was no provision in the Income tax Act providing for production of a Tax Residency Certificate (TRC) for claiming the tax treaty benefit. This was neither a precondition mentioned in the tax treaties entered into by India. Tax Officers however in most cases did insist for a TRC while examining the treaty benefit claim. Tax Officers were by and large accepting TRC provided by the respective countries’ tax authorities.

Last year, the requirement for a TRC, was provided as a necessary condition for claiming tax treaty benefit. The memorandum explaining this amendment stated TRC containing specified particulars as may be necessary but not a sufficient condition for availing tax treaty benefits. The revenue authorities issued rules notifying the details that were to be contained in the certificate which were as under.

  1. Name of the assessee
  2. Status of the assesse
  3. Nationality (in case of individuals)
  4. Country of incorporation/registration
  5. Assessee’s Tax Identification number
  6. Residential Status  for the purpose of tax
  7. Period for which the certificate is applicable
  8. Address of the applicant for the period for which the certificate is applicable

The certificate was to be verified by the tax authorities of the respective countries.

In practice however it is observed that not all countries’ tax authorities change their format of TRC and certify the above details. Mostly, it was observed that status, country of incorporation/registration and validity period of the certificate, were not certified. This could have caused hardship to genuine claims for tax treaty benefit.

2.      Amendment proposed

The Finance Bill 2013 generated further controversy by proposing to introduce the language of the Memorandum of Finance Bill 2012 into the Act viz. TRC will not be sufficient condition for claim of the tax treaty benefit. The claim of tax treaty benefit thus would have become a difficult exercise.

However, while moving the Finance Bill 2013 in Lok Sabha, amendments were proposed to the Finance Bill by deleting the above amendment and introduction of changes in the language of the existing provisions relating to TRC.

Now, the proposal requires that a TRC issued by tax authorities of the respective country will have to be provided to claim tax treaty benefit.
The provision that TRC is not a sufficient condition has been dropped. However, the catch remains that this amendment is coupled with another requirement which requires that the concerned assessee has to produce such other documents/information which will be notified later.

3.      Conclusion

It appears this move is prompted due to the fact that the tax authorities of many countries were not certifying all the above eight details rendering the TRC incomplete on a strict reading of law.

With the new proposed amendment, it seems that the TRC can be of any format so long as it certifies the tax residency of the non-resident assessee. It also seems that the documents in respect of the above details may have to be provided in order to claim the tax treaty benefit. However, this issue remains uncertain as the documents are yet to be notified.

Overall the rules seem to be softening and a welcome move as against what was proposed in the Finance Bill 2013 as introduced initially. If put through in an assessee friendly manner, these amendments will go a long way in settling the uncertainty over the claim of the tax treaty benefit and would in terms of the Finance Minister’s promise given to the foreign investors regarding stable tax regime.

(Author is a Manager with Deloitte Haskins & Sells & Views expressed are his personal views)

Categories: Income Tax

View Comments (4)

  • Dear Admn,

    can you please provide some insight on the implication of TRC. I am of the view that at the time of TDS TRC is not required (by plain reading 90(2)). Few are of the opinion by combined reading of Sec. 2(37) with 90(2) that TRC is reqd at the time of TDS. Can you pl throw some light on this.


  • I am a SME engaged in the business of software export. I regularly pay in USD to non-residents through Credit Card for services like Web Hosting, referring customer to my Web Site, Banner advertisements and the like. TDS is not required on these services based on Tax Treaty and the Case Laws. My business heavily depends on such services sourced from non-residents.

    With Tax Residency Certificate becoming a pre-condition for availing benefits of Tax Treaty, is it that now I have to insist on all these non-resident parties to obtain and provide me TRC?

    Many of them may not be willing to oblige compelling me to deposit TDS from my own pocket.

    Will some body to throw more light on this aspect?


    After 01.10.2013 obtaining of TRC before deducting TDS is required as the same has been very clearly brought in Form 15CB



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