The government of India has made it mandatory for all foreign investors to furnish a tax residency certificate (TRC) of the country in which they are located to claim benefits under the DTAA (double taxation avoidance agreement).

The top direct taxes body of the country, the Central Board of Direct Taxes (CBDT), has notified amendments to the Income Tax Act 1961. The amendments will take effect from April 1 next year, and apply in relation to assessment year of 2013-14 and succeeding years.

The amendments have been made with a sole objective to remove the arbitrariness in the prior regime to make the process of claiming tax credit easier for foreign investors.

All foreigners are entitled to claim benefits under the relevant tax treaty or the domestic tax law to the extent it is more valuable to them.

Sudhir Kapadia, national tax leader at Ernst & Young, welcomed the amendments saying the move would be very beneficial for Indian multinationals also.

Speaking on the topic, Kapadia said, "This would be very useful for Indian multinationals as they will be able to get a TRC in a speedy manner as there is a benchmark template prescribed unlike at present depending on the discretion of tax officers."

The tax residency certificate (TRC) for foreigners to avail tax benefits was proposed in the budget of 2012-13.