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As an NRI (Non-Resident Indian), you may earn income in multiple countries, leading to possible taxation in both the country where the income is generated and your country of residence. To prevent being taxed twice on the same income, a Tax Residency Certificate (TRC) plays a crucial role. This document is required to avail of tax benefits under DTAA (Double Taxation Avoidance Agreement) between India and your country of residence. Let us explore how a TRC benefits NRIs, the eligibility criteria, and the process of obtaining one.
A tax residency certificate (TRC) is an official document issued by the tax authority of a country to certify an individual’s tax residency status. It serves as proof that the person is a tax resident of that country during a particular period and helps in determining applicable tax rates on foreign income.
Under the DTAA, an NRI can take advantage of beneficial provision (if any) on taxation on income earned in India provided they furnish a valid TRC and online filed form 10F. Otherwise, the default tax rates applicable to foreign investors may be significantly higher.
A tax residency certificate is an essential document for NRIs to manage their global tax liabilities efficiently and avoid unnecessary financial burdens caused by double taxation.
Here’s what you need to know with regards to NRIs obtaining their TRCs:
To qualify for a TRC, NRIs must satisfy their resident country’s tax residency rules, which typically consider:
NRIs must follow the following process for obtaining their TRCs:
A tax residency certificate offers 4 key benefits:
With a TRC, NRIs can claim tax benefits under the DTAA between India and their country of residence, ensuring they are not taxed twice on the same income.
A TRC helps in reducing tax burdens by allowing NRIs to benefit from lower tax rates on income earned in India.
Many tax treaties specify lower withholding tax rates on interest, dividends, and capital gains. TRC enables NRIs to claim these reduced tax rates.
A TRC simplifies tax return filing in India and ensures NRIs can legally claim tax exemptions on income earned outside India.
Without a TRC, NRIs may be subjected to higher withholding tax rates on income generated in India.
Failure to obtain a TRC can result in non-compliance issues and rejection of DTAA benefits during tax assessments.
NRIs without a TRC might face double taxation, leading to extra financial burden. Additionally, tax authorities may levy penalties for incorrect tax filings.
A tax residency certificate is essential for NRIs to avoid double taxation and to avail benefit of lower tax rates (if any) available under the DTAA. It simplifies tax filing processes in India and abroad, ensuring compliance with tax laws. Without a TRC, NRIs may face higher tax rates and legal complications. Therefore, it is crucial to apply for and maintain a valid TRC to manage tax liabilities effectively.
If you are an NRI looking for seamless banking solutions, you can opt for IDFC FIRST Bank’s NRI Account to avail features that are tailored to your financial needs.
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