Budget 2015: Arun Jaitley likely to prescribe threshold for furnishing of Tax Residency Certificate

NEW DELHI: In order to promote ease of doing business, Finance Minister Arun Jaitley is likely to fix a monetary threshold for furnishing Tax Residency Certificate (TRC) which is needed by overseas entities for availing benefits under bilateral tax treaties.

The move, according to sources, will remove the administrative burden for companies seeking overseas investments in smaller quantities.

At present, all entities coming with Foreign Direct Investment (FDI) have to furnish a TRC to the Income Tax Authorities.

According to tax experts, while the larger companies do not face much problem in furnishing TRC, the smaller ones face problems as they do not have adequate administrative machinery to deal with the regulatory requirements.

The Ministry is considering putting a threshold for furnishing of TRC, sources said, adding that it would significantly improve the ease of doing business in India.

This issue, according to KPMG (India) Partner Tax Vikas Vasal, particularly assumes importance in case of a non-resident having few transactions or where the amount involved is not substantial.

"TRC requirement should be done away with and the non-resident asked to self-certify and provide the necessary particulars to the Indian resident making the payment. Alternatively, a monetary threshold limit should be introduced to exempt most of the day to day transactions from this requirement," Vasal said.

An announcement in this regard is likely to be made in the Budget to be presented by Jaitley on February 28.

In the Finance Act 2012, the government made it mandatory for non-residents to produce a tax residency certificate (TRC) from the home country revenue authority when seeking to avail themselves of tax treaty benefits.

The format of the TRC is prescribed by the revenue department. Under it, the foreign investors have to provide the tax identification number, their residential status, period for which the TRC is applicable and address of the assessee during that period.