In a significant move, the Finance Bill, 2013, has proposed the introduction of a provision in the Income Tax Act that will make submission of the Tax Residency Certificate (TRC) necessary but not a sufficient condition for availing of tax benefits in India. The memorandum explaining the provisions of the Finance Bill, 2013, says, "It is proposed to amend sections 90 and 90A in order to provide that submission of a tax residency certificate is a necessary but not a sufficient condition for claiming benefits under the agreements referred to in sections 90 and 90A."
This would mean that only getting a TRC from the foreign jurisdiction will not suffice. The assessee will have to comply with all the provisions of the double tax avoidance agreement (DTAA) of the country concerned to get the tax benefit. These amendments will take effect retrospectively from April 1, 2013, and will apply assessment year 2013-14 onwards.
This position was earlier mentioned in the memorandum explaining the provisions in Finance Bill, 2012, in the context of insertion of sub-section (4) in sections 90 & 90A. The finance minister said the government is ready to clarify any ambiguity regarding this.
Section 90 of the Income Tax Act empowers the Centre to enter into an agreement with a foreign country or a specified territory outside India to avoid double taxation, exchange of information and recovery of taxes. With this, Section 90A of the Income Tax Act empowers the central government to adopt any agreement between specified associations for this.
The Indian government has entered into DTAAs with different countries and has adopted agreements between specified associations for relief of double taxation. The scheme of interplay between DTAA and domestic legislation ensures that a taxpayer, who is a resident of one of the countries that is party to the DTAA is entitled to claim applicability of beneficial provisions either of DTAA or of the domestic law.
