The Ministry of Finance has amended the law (Sections 90 and 90A) governing the tax residency certificate (TRC) to avoid double taxation. The amendments will come into force from April 1, 2013, that is, it will be applicable for the 2013-14.
Incidence of double taxation comes into effect when an taxpayer has earned an income in a foreign country typically, for less than 6 months. Such taxpayer(s) is taxable both in the foreign country and in resident country.
The Central Board of Direct Taxes (CBDT) has come out with Forms 10FA and 10FB for TRC. If you need a residency certificate from the a country's tax authority you will have to file Form 10FA and Form 10FB will be the certificate. It is applicable both for individuals and companies.
As per the CBDT notification, the application form asks you for basic details - name and address, status (individual, Hindu Undivided Family, body of individuals or company), nationality, address during the period for which TRC is desired, Permanent Account Number (PAN) or Tax Deduction Account Number (TAN) and the purpose of TRC. You also need give documents to support the above information.
Till now, there was no format for a TRC, say tax experts. Individuals or companies would either sign a declaration or the concerned tax authority would issue a TRC according to their own format, says Homi Mistry, tax partner of Deloitte, Haskins and Sells.
Tax experts say there are some issues that the government has not addressed as yet. One, will the foreign government issuing TRC cooperate in providing it the way required by the Indian government? Also, there is no timeline (1-month, 2-month, 10 days) specified within which a TRC has to be issued. In case of companies, beneficial ownership is also a concern, that is, how will the authorities know who is the real owner.
The Union Budget had mandated TRC to get benefits under the Double Taxation Avoidance Agreement (DTAA). As per Section 90 and 90A of the Income Tax (I-T) Act the government can enter a pact with a foreign government for avoidance of double taxation. And it can adopt any agreement between specified associations for relief from double taxation. Here, the provisions of the I-T Act or DTAA, whichever is more beneficial, is applicable.