Applying for Tax Residency Certificate in India – Making Double Tax a Non-issue
Keep the taxman away from double-timing your doorstep by applying for Tax Residency Certificate in India. It’s the best way to keep more of your income.
Applying for Tax Residency Certificate (TRC) in India is a sensible thing to do if you want to avoid being taxed twice for the same income. Nobody wants to give away their hard-earned money to the taxman, let alone twice. However, as tax laws are unavoidable, getting a TRC is one of the best ways to secure your income.
Any country’s taxation code will affect its economic performance. Tax is needed by governments as a source of revenue to promote economic development. Having a carefully curated tax code will boost domestic economies and enhance governance. As such, many countries are continually reforming their tax codes.
TRCs Are Trending
Initially, India taxation was based on the Source and the Residence Rule. As their names imply, the Source Rule had taxation occurring in the country the income originated from. The Residence Rule saw taxation happening in the country the taxpayer was staying in.
This caused chaos for global business operations as taxation happened at both ends leading to unsustainability. As such, Double Taxation Avoidance Agreements (DTAA) was created. The DTAA is a tax treaty signed between countries to ameliorate the double taxation problem.
It became possible to claim tax benefits in India under the 2012 Finance Act, which enabled TRCs. By virtue of a TRC, foreigners in India can apply for tax relief from double taxation. Applying for a TRC in India may be mandatory if you or your business:
- Are a tax resident in one country
- Earn an income from another country or countries
The TRC can be applied for and submitted to the host country by:
- Residents in India earning an income from another country
- Foreigners who are earning an income in India
- Non-resident Indians (NRIs) who are earning an income from another country
Failure to get a TRC in India may result in double taxation of all income earned. This could come from the country of residence as well as the country from which an income is earned. The process for getting an Indian TRC requires the submission of Form 10FA to the Indian income tax authorities. By applying for a TRC in India, you will be able to establish the country of which you are considered a tax resident. The relevant DTAA of that country will then apply to your income.
Relief is granted under the DTAA via:
- Exemption Method where income is only taxed in one country and exempted from the other
- Tax Credit Method where double taxation occurs but the country of residence will allow a tax credit
The Way Forward for Taxation in India
However, it is interesting to note that a recent ruling by the Indian Income Tax Appellate Tribunal has enabled tax treaty benefits without a TRC. The position as it applies is still subject to ambiguity.
Taxation matters are complex and convoluted. Finding the right solution requires the right partners. 3E Accounting has the incisive insight needed to help you find the right solution to your tax requirements. Applying for Tax Relief Certificate in India may still be the best option to avoid all the unpleasantness of double taxation.
Contact 3E Accounting today for some expert insight on all your business’ needs.