‘Clarification on tax residency clears the air’

Vinson Kurian Thiruvananthapuram | Updated on August 12, 2013 Published on August 12, 2013

It is now imperative that tax deductors review the certificate obtained from their vendors.

High net worth individuals in the State and those dealing with entities in overseas centres such as Dubai could breathe free with the Centre issuing a clarification on tax residency certificate.

“One does hope that the issue governing the certificate is finally laid to rest,” says Sherry Oommen, founder and senior partner of GyanMagnus Associates.


A number of cases had come to light where lower-level officials in the income-tax department had refused tax treaty benefits to assessees, Oommen told Business Line here.

Giving an overview, he said that India has so far signed comprehensive double tax avoidance agreements with over 80 countries under Section 90 of Income-tax Act, 1961.

A double tax avoidance agreement is entered between two countries to ensure that a particular income is not taxed twice.

As per provisions, a taxpayer, who is resident of a contracting country, can claim tax benefits under the provisions of this agreement or the I-T Act, whichever is beneficial.


Section 90 was amended vide Finance Act, 2012, to make submission of a tax residency certificate containing certain prescribed particulars a mandatory condition for enjoying treaty benefits.

But the Finance Bill, 2013, sought to amend section 90 to provide that submission of certificate is a necessary but not a sufficient condition for claiming benefits under the agreement.

This had stirred the hornets’ nest requiring the Centre to drop the proposal from the Finance Bill, Oommen said. The Finance Act instead merely reiterated that the certificate is adequate enough to prove one’s tax residency.

The government also did away with the requirement of obtaining prescribed particulars in the certificate.

The assessee will hence be required to furnish such documents and information, thereby virtually making the process self-declaratory.


The Central Board of Direct Taxes has now issued a notification amending the rules with effect from April 1.

If one considers the assessment year and tax year, these requirements may be applicable from tax period commencing on April 1, 2012.

It is now imperative that tax deductors review the certificate obtained from their vendors, Oommen said.

If the certificate does not contain any of prescribed information, it would be prudent for the deductor to obtain them in prescribed Form 10F at the earliest along with supporting information/documents.

Rules also mandate that the deductor keeps the documents which are necessary to substantiate the information, Oommen added.


Published on August 12, 2013
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