In this video, Abhinav is explaining the finer tax provisions & procedure for NRI to claim DTAA benefits in India.
Video transcript below (note that auto-transcription can contain errors)
Hello, and welcome. This is Abhinav. In this video, I’m sharing information on how, Indian nonresidents, based in US can obtain tax residency certificate, which is also known as TRC, in the US. So what is the procedure? They can get that certificate.
Now, first of all, why a TRC is required? See, every country tax law, right, even, for that matter, Indian tax law under section 90 91, require an assessee or taxpayer to obtain a TRC, a tax residency certificate, if he or she is claiming a benefit as per the DTAA. Now understand this thing that India has a tax law, US has a tax law. Right? If an income is being taxed in both countries, right, the person can get a kind of an exemption or a credit of that particular income as per the DTAA.
So if I am, like, a tax resident of US I’m based in US, but I’m an Indian. So my income is getting taxed in India also. It’s getting taxed in US also. And, see, DTAA is an agreement between India and US to kind of avoid double taxation, in such cases. If I’m taking and DTAA overrides India and US tax law.
Right? So if I’m taking benefit of DTAA, right, because I’m a US resident, that’s why US is taxing me. I’m in the I’m the income source is in India, that’s why India is taxing me. So what Indian tax law says Indian tax department says that you need to prove that you are a US tax resident. And for that purpose, there is a document called TRC, tax residency certificate, that you need to get from the IRS.
IRS is the tax administration body in the US. Right? So that document, you need to obtain from the US if you are claiming any benefit as for the India US DTAA. Right? Now if at all you try to take a benefit of DTAA in your Indian tax return, right, and you don’t have a TRC in place and your kind of case gets selected in scrutiny, then the benefit can be rejected.
The benefit that you’ve taken or maybe a lower tax withholding rate or an exemption of that income from being taxed in India because of the DTAA, that benefit will get rejected just because you don’t have a TRC in place. So very, very important, if you want to claim any benefit as per DTAA, you have to first get the t the, the TRC on your file. Right? As a record, you don’t need to submit it. You just need to keep it with you.
Right? Also, second situation, if there is any, income that you get from India, which may be taxed less, at a reduced rate or it may be taxed at a zero rate, by the Indian, the TDS rate will be 0 or reduced to date as compared to the normal 30% tax rate. As for the DTAA, if you want to claim that benefit so when you file a, kind of a statement to them that, you know, this needs to be taxed at a lower rate because of DTAA, then also the withholding agent in India may require a TRC to apply the lower TRC. Right? Now the same thing can be done as a reverse also.
For example, you are a resident in India and the income is belonging in in US and the you want to claim a reduced rate in US. Right? The reduced withholding rate. Right? So there also, what they will want is the withholding agent will require a TRC from India, Indian Tax Authority.
So that is in 10F or 10FA, so that I will take up in a separate video. Right? So that arrangement is there. This document is required if you want to take a TRC to get DTAA benefit. Right?
Okay. Now how to apply? Right? Now you can apply to IRS. There is a form for this, form 8802.
Right? You can search for this form. It is available. You can just search form 8802 IRS in Google, and you’ll find on IRS instructions. Also, detailed instructions are available on this form.
I will also give the link in the description. Now the TRC is issued in form 6166. That is, not very relevant, but the important thing is that this form has to file in 8802. Right? So now what in this video, I’m just giving an overview of the main kind of provisions on getting this, TRC.
Right? So who can file only or only if you qualify as a tax resident of yours. Right? So that means if you are a nonresident alien and all, then you cannot claim. See, there is a fee for this this this form.
You need to pay a fee. That is, like, for individuals, it is $85. For nonindividuals like corporates, it is $1.85 per application, not for per certificate. There is basically one application against which you can request for certificates for for basically different countries or different years. Right?
So there is one application against which you can request for multiple certificates, but there is only one fee, one application fee. For individual, it is 85. For, corporate, it is 185. If you’re requesting for both individual and corporate, then you need to pay, separate applications. Right?
Now this fee can be paid electronically. So on on the pay.co site, you can go, you can make the payment, and whatever the reference number is there of the payment, then that you can quote it in your, in your form 8802. This basically, 8802, you need to it’s a manual filing. So it’s not this form 8802 cannot be cannot be e filed. Right?
So the method of application is that it is by mail. There’s a IRS postal address that is given in the instructions. You need to file it. Right? Or you can file it by fax also to the IRS.
The fax numbers are also given. Now when to file? It is minimum 45 days prior to the date you need to submit. It’s IRS takes its own time. Right?
It’s not that today you request and you’ll get it within a week. No. They they have they if you anything that you do it on mail, it takes time. They also have their staff processing time and everything. So minimum 45 days is what they they say, and they are saying that if there are any queries, they will revert back by 30 days from your submission.
They will come back to you if there are any queries. So you need to leave that gap of 45 days prior to the date you need to submit it in India to a withholding agent. If you don’t want to if you don’t have to submit to a withholding agent just to keep it for record, then there is no kind of timeline as such. Right? But this is, like, the kind of buffer that you need to keep.
And early submission limitations also applies. For example, if you are requesting for 2023, then you cannot, like, give it, give your application, like, before December 1, 2022. Right? So those kind of limitations also apply. You cannot submit the form too early.
Right? Now who can’t file? Basically, if you have, there are certain individuals who cannot file. If you have not filed a US tax return, you cannot file. If you have filed a tax return as a no less, that means you have filed 104 n r, then you cannot file this, then you cannot obtain this TRC.
Then there are certain dual residency cases where the tie breaker rule. So when you have a dual residency, there’s a tie breaker rule, and that determines you to be a resident of some foreign country, not of US, then you cannot. Now then if it’s a fiscally transparent entity with no US partners or beneficiaries, that entity cannot file. Or if the person if the person is an exempt organization, tax exempt organization, that also cannot file. So certain people cannot file.
Now the form that you request, there is a in the form, there is a space for address. That address can be a US address. That address can be a foreign address. Now if you want to receive express delivery, then there is a express delivery options that are available. You need to also, you know, attach a prepaid kind of an envelope, and with your whatever foreign address, regarding whatever the DHL or service fee.
Right? Prepaid envelope, you need to attach. So if you want express delivery, you need to do that. Now multiple forms can be requested. Now for in a particular application, for example, you need to give the TRC to 3 different places.
Right? Three different places in India. You can request for 3, 4, 5 forms. You can state how many forms that you require, and that also depends on which country wise also you can decide. For example, you need to give in you have, like, assets or investments in, like, 5 countries, right, spread over the world.
Then you can, like, state how many certificates you require per country. That all options are there in that form. Then ensure that you file that action for the periods that you’re claiming the certificate. Right? So if you have not filed a tax return, then you need to attach the latest so if you have filed a tax return, only then you can get the this, this certificate.
So if you have not filed a tax return, you need to attach the copy of the most recent return. And in that return, you need to mention on the top of the return, copy. Do not process. That means it is not for processing. It is just as an attachment to this form.
Then you need to send your most recent attach your most recent return. Then there are certain special document requirements for green card holders, dual status, 1st year election, form 1116 cases. In all those cases, there are certain special documentation. However, there are certain exemptions to certain countries where they need don’t need to produce any further documents, and India is one of the countries where that exemption is there so you can check that exemption. Certain documents are not required to be provided if you are a tax resident of India.
Right? So then in the form, you can nominate an appointee. For example, someone is helping you or assisting you in this, in this work, you can instead of you can give his name also. Right? So if IRAS has any questions or or, for example, you have you have a CPA or an enrolled agent, right, who is helping you with this, you can give the name and the number of the enrolled agent of the CPA.
The IRS will call the CPA or that enrolled agent. Or you can also attach form 2848 or 82 1 where, basically, you are authorizing kind of a CPA or an enrolled agent or a or an attorney to, to help you in these matters, and you can just attach that form. So IRS will then communicate with the concerned, professional regarding this form if they have any questions with respect to this form. Now the certification period is basically 1 year. Right?
So for example, IRS will give you the certification for 2023 or 2022 or 2021. 1 only 1 year. They will give the certification. Now for fiscal year countries like in India, we have April to March. We don’t have calendar year.
So for that thing, for example, if you require for April 2023 to March 2024, then you need to need the certificate for 2023 as well as 2024. Right? You can you’ll have to request 2 certificates from them. Then as for the instructions, they say that IRS says that you cannot claim FTC to reduce any US tax liability. So they’re very clear.
The FTC is basically meant for if you want to claim the like a tax kind of a a DTAA benefit in Indian tax return or a claim or lower withholding tax in India, it doesn’t mean that you use the FTC to reduce US tax liability. You cannot reduce your US tax liability through an FTC. Right? Now, if you claim FTC, if you claim foreign, foreign tax credit in your US tax return, for example, India has deducted a particular tax to you, and, the same income is taxable in US and you claim FDC. You can claim taxes for the foreign income, foreign taxes credit.
Right? Credit for foreign taxes, unlimited amount you can see, right, in US tax return. And later on, what happens is, maybe you amend the return in India claiming the treaty benefit because of the TRC, and you get a refund in India, then IRS requires you to amend the US tax return also and amend the FTC amount. And then maybe if you have to pay a differential tax, you’ll have to pay a differential tax in US. So that is the provision.
Now reverse situation where you need a tax residency certificate in India. For example, you have a US income, but you are a tax resident of India, that is in form 10 f f a as to the Indian tax authorities. I’ll make a separate video for this, and I’ll put the link in the description so you can check out that link. I hope this video was useful. It provided you some useful information.
If you have any queries, any thoughts, do put it in the comment section. I will reply to that. Thank you so much for watching this video. Thank you so much.