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  • As per the provisions of section 90(2), in case of remittance to non-residents, the tax should be deducted at the rate provided in the Finance Act of the relevant year or at the rate provided in the DTAA if any, whichever is more beneficial to the assessee.
  • In Finance Act, 2012 the government had introduced a mandatory requirement of furnishing Tax Residence Certificate (TRC), for non-residents seeking tax treaty benefits vide Section 90(4).
  • The rationale was to DzRefrain third party residents, from claiming unintended Treaty benefitsdz.
  • Subsequently, the particulars required in the TRC were also notified in Rule 21AB.
  • However, experience showed that

           -In some Treaty partner countries, obtaining a TRC with DzIndia prescribed particularsdz was a tedious                          exercise.

          -In some cases , there was reluctance to issue the desired TRC, due to the fact that such countries had their own            formats.

          -Further, there were countries where there was no mechanism to issue TRCs.

  • While the non-residents were still grappling with these concerns, the Finance Bill 2013 proposed to insert in tax law that TRC would be a necessary but not sufficient condition for availing the benefits of the Treaties.
  • This proposal created a lot of concerns.
  • It was feared that the tax department would ask additional questions and Treaty benefit could be at risk.
  • Investing communities which have invested into India particularly Mauritius were worried.
  • In this context , it is important to note that in the year 2000, the CBDT had issued Circular 789 dated 13th April 2000, to clarify that whenever a TRC is issued by Mauritius Government, such TRC would constitute sufficient evidence for accepting the residence as well as beneficial ownership.
  • The Apex Court in case of Union of India v. Azadi Bachao Andolan [ 2003] 132 taxmann 373 (SC) upheld the legal validity of this beneficial Circular.
  • It was felt that the amended provisions would enable the tax authorities to disregard the beneficial Circular.
  • Some sections of professionals apprehended and opposed that it was a unilateral approach to circumvent a Bilateral Treaty.
  • After undergoing a few changes, it has now been provided that in order to avail Treaty benefit, the non-resident would have to provide a Dz Certificate of his being a resident as against the earlier requirement of TRC with India prescribed particular.
  • In accordance, the Income Tax Rules, 1962 have been amended to include Rule 21 AB which states that the non resident shall provide the following information in Form No. 10 F.

           – Name of the Tax Payer . TAX RESIDENT CERTIFICATE TRC

           – Status (Individual, Company, Firm, etc.) of the taxpayer .

           – Nationality (for individuals) .

           – Taxpayerǯs tax identification number in the country or specified territory of residence or, in cases where                         there is no such number, a unique number by which the person is identified by the government of the                             country or the specified territory.

           – Period for which the certificate is applicable.

           – Address of the applicant for the period for which the certificate is applicable.

  • Tax Resident of India can also obtain Certificate from Indian Government

           – Rule 21 AB of the Rules also prescribes specified forms for tax residents of India to obtain a Certificate from                   the respective AO.

           – A taxpayer who is a resident of India, and who wishes to obtain a certificate of residence for the purposes of a               tax treaty, shall make an application in Form No. 10FA to the AO.

           – The AO on receipt of an application from the taxpayer shall issue certificate of residence in Form No. 10 FB.

Five Reasons Why You Can Get an Income Tax Notice


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