INCOME TAX RESIDENCY CERTIFICATE (ITRC)

Tax residency certificate (TRC) is a proof of the tax residency of a person in one country thereby making him eligible for availing double taxation treaty benefits.

To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.

Step 1 given below will ascertain whether the individual is resident or non-resident and step 2 will ascertain whether he is ordinarily resident or not ordinarily resident. Step 2 is to be performed only if the individual turns to be a resident.

Step 1: Determining whether resident or non-resident

Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):

(1) He is in India for a period of 182 days or more in that year; or

(2) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.

If an individual does not satisfy any of the above conditions he will be treated as non-resident in India.

Note : Condition given in (2) above will not apply to an Indian citizen leaving India for the purpose of employment or to an Indian citizen leaving India as a member of crew of Indian ship or to an Indian citizen/person of Indian origin coming on a visit to India. A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India.

Note: With effect from Assessment Year 2015-16, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or peri​ods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.

Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies following conditions:

(1) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.

(2) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of an individual:

• If the individual satisfy any one or both the conditions specified at step 1 and satisfies both the conditions specified at step 2, then he will become resident and ordinarily resident in India.
• If the individual satisfy any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he will become resident but not ordinarily resident in India.
• If the individual satisfy no conditions satisfied at step one, then he will become non-resident.