The controversy surrounding tax residency certificates (TRC) has been settled.
The Centre on Tuesday came out with a simplified version of the TRC-related provisions so as to allay the fears of foreign investors.
Foreign investors had turned jittery as the Finance Bill 2013 sought to arm the taxman with discretionary powers in not accepting the TRC furnished by them.
They feared that treaty benefits would be rejected even if the non-resident were to furnish TRC.
This had also cast a doubt over the validity of the Supreme Court judgment in the Azaadi Bachao case and also the Income-Tax Department’s Circular 789 issued in the context of Mauritius.
On Tuesday, Finance Minister P. Chidambaram deleted a clause in the Finance Bill 2013 that specified that TRC was a “necessary but not a sufficient condition” for getting tax benefits.
He replaced it with a provision that would require an assessee looking to get treaty benefits to also provide “such other documents and information, as may be prescribed”. Simply put, the Indian tax authorities will now accept TRC issued by a foreign government. But additional information can always be sought from the non-resident.
“Additional information can also be asked by the Government, but TRC issued by the foreign government will be accepted as certificate of residence,” Chidambaram told newspersons outside Parliament after the Lok Sabha passed the Finance Bill without discussion.
Chidambaram moved as many as 23 official amendments to the Finance Bill 2013. He also made it clear that agricultural land will not attract any wealth tax.
Many tax experts see today’s changes in the TRC-related provisions as something that has brought clarity to the entire issue.
An important fallout of today’s amendments is that the foreign governments can issue such certificates without having to adhere to the format prescribed by the Indian Government.
The earlier stance was that the Centre would prescribe the particulars to be contained in TRCs issued by foreign Governments.
“The TRC-related changes made today reduces uncertainty and is clearly foreign-investor friendly”, Pranav Sayta, Tax Partner, Ernst & Young told Business Line.
The amendments relating to TRC would go a long way in pacifying the foreign investors, said Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a firm of chartered accountants.
Amit Singhania, Principal Associate, Amarchand & Mangaldas, said that a non-resident will still be required to furnish information/documents as may be prescribed.
However, whether this would be sufficient discharge of onus to prove residency of non-resident has not been clarified beyond doubt in light of memorandum to Finance Act 2012, he said.