Income earned abroad? How a Tax Residency Certificate helps taxpayers claim DTAA benefits

New Delhi: Indian residents who draw income from overseas or NRIs who have sources of income in India have the provision to claim benefits under the Double Taxation Avoidance Agreement (DTAA). A Tax Residency Certificate (TRC) can be used to prove one's residential status in order to avail of the tax benefits under DTAA.

The Income-tax Act, 2025, allows taxpayers to apply for a TRC using Form 42, available on the portal.

What is TRC?

It is an official document issued by a country to certify that a person is a resident of that country for tax purposes. This certificate enables the person to apply for benefits under the tax treaty between India and the other country.

Taxpayers use this certificate when they earn income from another country and wish to claim benefits under DTAA.

What is DTAA?

When a person earns income in one country but is a tax resident of another, they have tax liabilities in both countries, leading to double taxation. This may create an additional financial burden on the person. To avoid such a situation, the government has the provision of a Double Taxation Avoidance Agreement (DTAA), which is a bilateral agreement with another country that includes certain benefits for taxpayers, reducing their tax liability.

India has signed DTAAs with several countries to provide exemptions, lower rates, or relief from double taxation to eligible taxpayers.

What is Form 42?

It is the official application through which a taxpayer may obtain a Tax Residency Certificate under Sections 159(1) and 159(2) of the Income-tax Act, 2025 (corresponding to Rule 75(3) of the Income-tax Rules, 2026).

“Any resident who claims tax residency in India and is required to file a tax residency certificate to claim DTAA benefits or fulfil requirements in other countries,” an explainer by the Income Tax Department lays out who can file the form.

Documents required

A Tax Residency Certificate is an essential step towards obtaining benefits under DTAA. To establish one's residency as a taxpayer in India, one has to fill out Form 42. Therefore, taxpayers are required to have the following documents while filing Form 42:

Personal documents such as Permanent Account Number (PAN), Aadhaar, Tax Deduction and Collection Account Number (TAN), and passport.

Taxpayers other than individuals must have a document of registration or incorporation.

Any other document that may support the details to be uploaded in the concerned form.

Filing procedure

Any individual seeking proof of tax residency in India while earning income from another country should obtain a TRC to claim benefits under DTAA.

1. Log in to the Income Tax e-filing portal using PAN.

2. Choose Form 42, available under the section for forms under the Income-tax Act, 2025.

3. Choose the tax year.

4. Fill in personal information in Part A and TRC-related information in Part B.

5. Attach the applicable documents.

6. Verify the application using an Electronic Verification Code (EVC) generated through a pre-validated bank account or demat account, through net banking or an ATM (depending on the bank), using Aadhaar-based OTP, or through a Digital Signature Certificate (DSC), depending on the taxpayer's profile.