Tax residency certificate: Is the devil in the details?

Atax residency certificate (TRC) is important for claiming tax treaty benefits. Some source countries are cautious about providing tax benefits to non-residents, especially to corporations from low tax jurisdictions which have a favourable tax treaty. India is no exception to this international principle.

Mauritius treaty

One of the most important treaties under which India provides key tax benefits is with Mauritius. Under this tax treaty an entity that qualifies as “a person resident of Mauritius” can claim the benefits of lower withholding tax on dividends and non-taxability of capital gains income on the sale of shares in India.

Circular 789 issued by the Central Board of Direct Taxes (CBDT) in 2000 laid down that obtaining a TRC would suffice to obtain the benefits of the India-Mauritius tax treaty. Providing a TRC should obviate the need to examine the beneficial ownership of the transaction entered into with the Mauritian company. The circular specifically clarified that a TRC issued by Mauritian authorities will constitute sufficient evidence for accepting the status of residence as well as beneficial ownership for applying tax treaty provisions.

Economic Laws Practice is a full-service law firm with headquarters in Mumbai and offices in New Delhi, Pune and Ahmedabad. Pranay Bhatia is a partner at the firm and Janhavi Sharma is an associate.