The government has mandated that from April 1, 2013, all foreign investors desirous of claiming benefits under the double taxation avoidance agreements (DTAAs) will have to produce tax residency certificates (TRC) of their base country in which they are located.
According to a notification issued by the Central Board of Direct Taxes on September 17, 2012, the amendments to the Income Tax Act, 1961, will take effect from April 1, 2013, and apply in relation to assessment year 2013-14 and subsequent years. The notification, in effect, amends Section 90 and Section 90A of the I-T Act dealing with taxation of foreign investment and tax benefits under DTAAs. Till date, India has inked DTAAs with 84 countries. Under Section 90 (4) of the Act, as inserted by the Finance Act, 2013, with effect from April 1, 2012, it is provided that an assessee, not being a resident, to whom an agreement referred to in sub-section (1) of Section 90 applies, shall not be entitled to claim any relief under a DTAA unless a certificate, containing such particulars as may be prescribed, of his being a resident in any country or specified territory outside India is obtained by him from the government of that country or specified territory.
A similar provision has been inserted in sub-Section (4) of Section 90A of the Act and pursuant thereto, the CBDT notification seeks to insert Rule 21BA and Forms 10FA and 10FB specifying the manner in which the TRC should be obtained.
Accordingly, the TRC to be obtained by an assessee for availing himself of tax benefits shall contain the name of the assessee along with status — whether it is an individual or a company — the nationality (in case of individual) and the country wherein the company or firm is registered or incorporated. This apart, the TRC should have the tax identification number (TIN) of the assessee, its residential status for the purposes of tax, the period for which the TRC is applicable and the address of the assessee for that period. Also, the certificate shall be duly verified by the government of the country or the specified territory of which the assessee claims to be a resident for the purposes of tax. A clause in the various DTAAs that India has entered into, the assessee can take the advantage of paying capital gains tax in either of the two nations, wherever the rate of the levy is lower. Thus, the interplay of treaty and domestic legislation ensures that a taxpayer, who is resident of one of the contracting countries to the treaty, is entitled to claim applicability of beneficial provisions either of treaty or of the domestic law.
