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You can obtain tax residency certificate by submitting Form 10FA to the taxman

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What is a tax residency certificate (TRC)? Why is it needed? Can you tell me how to obtain it?

—Ankit Sabharwal

TRC is required to confirm which country you are a tax resident of. This may be essential when you have incomes from more than one country. While you may be tax resident of one of them, your income may be taxable in both the countries due to their respective domestic laws. To avoid paying tax on the same income twice, you may want to take benefit of the Double Taxation Avoidance Agreement (DTAA) between the countries. TRC helps establish which country you are a tax resident of so that the relevant DTAA may be applied to you and you can avail of the benefits stated therein.

India has made it mandatory to obtain TRC for a person who wants to avail any DTAA benefits of a treaty that India has entered into with another country. TRC may be required by non-resident Indians (NRIs) to submit to their host country and it may also be required by foreign nationals who have earned an income from India and want to take treaty benefits.

TRC in India can be obtained by submitting Form 10FA to the income tax authorities in India. TRC of a foreign country may be obtained from that country’s relevant authority.

I am an NRI and I live in Australia. I am planning to sell bitcoins and transfer the proceeds in my non-resident ordinary (NRO) account. Will that be a problem as bitcoins are banned in India? I can also get the money in my Australia account and then transfer it to my NRO account. What will be my tax liability, if any?

—Name withheld on request

Bitcoins are complex instruments and so far the income tax department has not issued any specific instructions on how they should be taxed. Whether the income received in India will be taxable in India or not will depend on several factors.

Firstly, it will be based on your residential status. Assuming you are an NRI for income tax purposes, you shall be taxable in India for income that is earned or received in India. If you are a non-resident and you receive the sales proceeds in Australia and later transfer them to India, such receipt will not be taxable in India.

Secondly, whether these bitcoins are to be taxed in India may depend upon where they are “situated”. It needs to be identified whether the gains from sale can be said to have arisen in India. If these gains arise in India, such bitcoins may have to be treated as capital assets for income tax purposes in India. One may choose to apply indexation benefit to costs and pay tax at the rate of 20% on long-term gains; this is when bitcoins have been held for a period exceeding three years. Gains may be treated as short-term and taxed according to income tax slab rates if bitcoins have been held for less than three years.

Since there are complexities around taxation rules of bitcoins and due to the absence of any specific guidelines from the income tax department, you must seek professional help to fully understand the tax implications and to be able to properly report these gains in your income tax return in India.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at [email protected]

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