Tax Residency Certificate in Income Tax Act 2025 of India Explained with example
Tax Residency Certificate in Income Tax Act 2025 of India Explained with example
What is Tax Residency Certificate
Under the Income-tax Act, 2025, a Tax Residency Certificate (statutorily referred to as a “certificate of his being a resident”) is a mandatory document for non-residents seeking international tax relief.
Here are the key points explaining its purpose and rules:
- Purpose of the Certificate: It is used by an assessee who is a non-resident in India to claim tax relief or the avoidance of double taxation under a special agreement (commonly known as a Double Taxation Avoidance Agreement or DTAA) that the Indian Central Government has entered into with a foreign country or specified territory.
- Issuing Authority: The certificate must be officially obtained by the non-resident from the Government of the country or specified territory where they claim to be a resident.
- Mandatory for Relief: Under Section 159(8) of the Income Tax act, a non-resident is entitled to claim treaty relief only when they possess this certificate of residency. Without it, the beneficial tax rates or exemptions under the treaty cannot be applied.
- Additional Documentation: Submitting the certificate alone may not be enough. The law states that the non-resident must also provide such other documents and information as may be prescribed by the income-tax authorities alongside the certificate.
Application for Tax Residency Certificate in India
Income Tax Form 42 as Per Income Tax Rules 2026 is the official application used to obtain a Tax Residency Certificate (TRC) in India from the Income Tax Department. Obtaining this certificate enables the taxpayer to fulfill legal requirements and successfully claim tax benefits in other countries under various Double Taxation Avoidance Agreements (DTAAs).
Applicability (Who Should File) The form must be filed by any resident who claims tax residency in India and is required to furnish a Tax Residency Certificate to foreign tax authorities to claim DTAA benefits.
What is the Format of Tax Residency Certificate in India
Tax Residency Certificate is issued in Income Tax Form 43 Income Tax Rules 2026 pdf download and Key points
Reporting of Tax Residency Certificate number in Income tax Form 146 by NRI
When the money has to be remitted to NRI who is claiming Income Tax relief then Chartered Accountant has to report Tax Residency Certificate in Income tax Form 146 Income Tax Rules 2026 . Refer Form No 146 Income Tax Rules 2026 Certificate of an accountant for payments to a non-resident, not being a company or to a foreign company
Tax Residency Certificate number has to be reported in clause 28 of Income tax Form 146 if DTAA relief is being claimed by NRI as follow
Practical Example on Tax Residency Certificate
The Scenario: Imagine Mr. Smith, who is a resident and citizen of the UK, works as an independent consultant. He provides technical consultancy services to an Indian business and earns an income of ₹ 10,00,000 for this work.
The Tax Problem: Because the services are utilized by an Indian business, this income is deemed to accrue in India and is generally taxable under Indian law. Let’s assume the standard Indian income tax rate for this technical fee is 20%. However, India and the UK have a Double Taxation Avoidance Agreement (DTAA) which states that technical fees for UK residents should only be taxed at a lower rate of 10% (granting relief).
How the Tax Residency Certificate works:
- To save money and claim the beneficial 10% rate instead of the 20% rate, Mr. Smith wants to use the India-UK agreement.
- Under Section 159(8) of the Income tax Act, the Indian Income-tax Department will not just take Mr. Smith’s word that he is a UK resident.
- Mr. Smith must apply to the UK Government (his home country’s tax authority) and obtain a formal certificate of his being a resident of the UK.
- Mr. Smith then submits this certificate to the Indian deductor/authorities, along with any other prescribed forms.
- The Outcome: By successfully presenting the certificate, Mr. Smith legally claims the relief under the agreement, and the Indian business deducts tax at the lower 10% rate instead of 20%. If he fails to provide the certificate from his government, he is denied the treaty benefit and faces the higher standard tax rate.
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