All foreigners will now need to furnish a tax residency certificate of their home country to claim benefits under the double taxation avoidance agreement. This will make the process of claiming tax credit easier for foreigners by removing the arbitrariness in the earlier regime. The Central Board of Direct Taxes (CBDT) has notified changes to the income tax act prescribing a tax residency certificate. All non residents are entitled to claim benefits under the domestic tax law or the relevant tax treaty to the extent it is beneficial to them.
A person who is a resident of the treaty country can avail treaty benefits in India. Earlier there was no requirement prescribed under the law to furnish a Tax Residency Certificate (TRC) from the country of residence to claim treaty benefits. However, the revenue authorities would ask for such a certificate wherever treaty benefit was claimed.The move will also benefit Indian companies that have overseas operations and foreign investors in India. A prescribed format will allow foreign residents to know in advance the essentials required to claim tax credits.
The TRC for availing tax benefits was proposed in the 2012-13 budget. In many instances the taxpayers who are not tax resident of a contracting country do claim benefit under the DTAA entered into by the Government with that country. Thereby, even third party residents claim unintended treaty benefits. The TRC would have the Tax Identification Number of the assessee, its residential status for the purposes of tax, period for which the TRC is applicable and address of the assessee during that period.