The government is likely to make it easier for foreigners to prove their residency for claiming benefits under bilateral tax treaties. After softening the blow of the general anti-avoidance rules, the revenue department is now amending the rules for tax residency certificates (TRC), made mandatory in Budget 2012-13 for those availing of tax benefits under double-taxation avoidance agreements (DTAAs).
The move follows representations made by foreign investors and clarifications sought by some countries with regard to the TRC form and subsequent rules notified by the Central Board of Direct Taxes (CBDT) in September 2012. Investors had raised concerns it would be troublesome for them to get the TRC that sought too many details from their resident country.
"Investors had some issues. The rules will be changed. The new TRC will provide more clarity. We will make the form less burdensome," said a finance ministry official who did not wish to be named.
Some countries have asked India to provide more clarity on whether TRC would have to be issued only once or for every transaction by an investor. These nations have also asked how and after what period TRC would have to be renewed. If a country is not willing to specify all this information in TRC or is taking a long time in issuing the certificate, an investor might be denied treaty benefits by Indian tax authorities.
"They are saying after issuing the certificate how would their authorities make sure the address of the investor does not change later. They can't know beforehand whether or not a company or individual would remain a resident the next day. That clarity will be provided in the new Rules," said another official.
The form would be re-designed in such a way that investors could fill up most of the details themselves. It could then be countersigned by the country issuing the certificate.
The existing form seeks details such as the name of the assessee, status (individual or company), nationality/country of registration, tax identification number, residential status, period for which the certificate is applicable, and address of the applicant.
The Finance Act 2012 had introduced a provision that required non-residents to submit a TRC from April 2013. "It is noticed that in many instances the taxpayers who are not tax residents of a contracting country do claim benefits under the DTAA entered into by the government with that country. Thereby, even third-party residents claim unintended treaty benefits," said the memorandum to the 2012-13 Budget.
India currently has DTTAs with over 80 countries and is in the process of revisiting some of those, such as the one with Mauritius, to check misuse of these agreements.