Tax authorities in India, the United States, and Canada have begun denying treaty benefits more aggressively when a taxpayer’s Tax Residency Certificate (TRC) expires, according to tax practitioners and recent guidance disseminated to banks and brokers. The shift affects cross‑border earners and investors immediately: people relying on Double Taxation Avoidance Agreements (DTAA) can face higher withholding, blocked refunds, and lost foreign tax credits if their TRC is missing for the current year.
Advisors say the change is most visible for Indian nationals living in the United States 🇺🇸 or Canada 🇨🇦 who hold income in India, but it also affects Americans and Canadians who claim treaty relief on income from India.
What a TRC does and why it matters
A TRC is an official document confirming where you are a tax resident for a given year. Treaties such as the India–U.S. DTAA and the India–Canada DTAA allow a person to claim reduced withholding or credits only if they provide current proof of residency.
Without a current certificate on file:
– Banks, brokers, and companies must apply domestic withholding rules, often at rates of 20% to 30%.
– Tax agencies can reject foreign tax credit claims for the same year.
– Compliance systems at financial institutions are increasingly coded to block treaty rates when there is no active certificate.
Because a TRC is valid for only one tax year, the main risk is the gap between the end of one tax year and the issuance of the next year’s certificate. In practice, taxpayers who once saw 10–15% DTAA rates on dividends, interest, or capital gains can find themselves at full statutory rates as soon as the calendar flips and the prior certificate lapses—even if nothing else has changed.
Typical scenarios and immediate impacts
Common scenarios that now trigger problems include:
– An Indian NRI who filed a U.S. return last year but forgot to secure the new IRS residency certification this year: Indian banks may withhold 30% on NRO interest instead of the treaty rate.
– A Canadian resident with investments in Indian mutual funds: the payer can withhold 20% rather than the 10% DTAA rate when the CRA residency letter on file is out of date.
– An Indian resident with U.S. dividend income: a U.S. broker can charge 30% if the Indian TRC was not refreshed.
A second common issue: when taxpayers try to claim a foreign tax credit at home after higher withholding abroad, the claim can fail if the file lacks a current certificate for that year. This mismatch can cause temporary double taxation until certificates are issued and submitted on both sides.
“Repeated claims without an active TRC can invite audits and penalty notices,” — observed by VisaVerge.com, especially when taxpayers continue to mark treaty rates on forms while the certificate is missing.
Treaty rules and payer behavior
Treaties and administrative practice emphasize annual residency verification:
– The India–U.S. DTAA and India–Canada DTAA require proof of residency to treat a person as a treaty resident entitled to benefits.
– The U.S.–Canada convention similarly treats residency on a year‑by‑year basis; the IRS and CRA issue letters for specific years.
Without a current certificate, payers are expected to fall back on domestic law. Operational teams at banks and funds therefore apply default withholding until they see a valid TRC, even for longstanding customers.
How to renew and where to apply
Mechanics vary by country but the central advice is: apply early and aim for overlap.
- United States
- Request Form 6166 (IRS certification of U.S. tax residency) by filing Form 8802.
- Processing typically takes several weeks; submit well before the new tax year starts.
- IRS guidance: Form 8802, Application for United States Residency Certification and Form 6166, Certification of U.S. Tax Residency.
- Canada
- Request a residency letter from the CRA’s international office.
- CRA guidance: tax residency status and certificates.
- India
- Obtain a TRC from the Income Tax Department for the relevant year.
- Banks in India typically insist on the certificate on file before applying reduced rates.
Consequences beyond withholding
A lapse can do more than increase withholding:
– Refunds can stall on both sides when files lack a matching TRC.
– India’s tax department may flag reduced‑rate requests or FTC claims for extra review.
– The IRS or CRA may request proof of the other country’s residency before allowing a credit for tax withheld abroad.
– In complex cases, missing certificates can create the appearance of dual residency, prompting tie‑breaker analyses, amended forms, and lengthy correspondence.
Examples of people frequently affected:
– Tech workers and students who change status mid‑year (e.g., student → H‑1B).
– Taxpayers selling stock options or receiving fixed‑income earnings without a contemporaneous TRC.
What to do before expiry
Advisers recommend thinking of TRC renewals like visa or insurance renewals:
– Start the request two to three months before the current year ends.
– Keep digital and paper copies for several years.
– Promptly send updated certificates to any bank, fund, or employer that applies treaty rates.
– Where benefits are claimed in more than one country, hold matching certificates for the same year to avoid conflicts.
Steps to fix a lapse
If a lapse has already occurred, there is usually a recovery path, but it can be slow:
- Obtain the relevant certificate:
- U.S. taxpayers: file Form 8802 to obtain Form 6166 for the relevant year.
- Canadians: request the CRA residency letter for the needed year.
- Indians: obtain the TRC for the year in question from the Income Tax Department.
- Submit the certificate to the payer and request rate correction going forward.
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Amend returns and pursue refunds or foreign tax credit claims on both sides:
- Add the certificate to your home‑country file to support an FTC claim (e.g., U.S. Form 1116).
VisaVerge.com’s analysis indicates taxpayers who follow this two‑step path—securing the certificate and then amending claims on both sides—generally recover excess withholding, though processing can take several months.
Compliance risks and cautions
Legal experts warn against claiming treaty rates without the certificate, even if you plan to provide it later:
– Payers must report why they used a treaty rate; missing documentation can be treated as misreporting.
– Repeated lapses can lead to penalties and increased scrutiny.
– Agencies may ask for supplemental forms or statements to confirm residency facts (place of home, center of vital interests, days present).
– Each year is assessed separately; last year’s TRC does not carry forward.
Key takeaway
The TRC is not a mere formality—it’s the key that unlocks DTAA protection for that specific year. Because treaty systems require documents that match years across borders, a missing certificate breaks the chain. The remedy is simple in concept but bureaucratic in practice:
- Apply early, keep copies, and share the updated certificate promptly with all payers.
- Doing so will result in steadier application of treaty rates and fewer problems with credits and refunds.
- Failing to do so is now more likely to trigger full domestic withholding first and long waits later—even when the taxpayer would qualify for relief once the paperwork is in place.
This Article in a Nutshell
India, U.S., and Canadian tax authorities are denying treaty relief more aggressively when a taxpayer’s Tax Residency Certificate (TRC) for the year has expired. Without a current TRC, payers revert to domestic withholding (often 20–30%), and foreign tax credit claims can be rejected. A TRC is valid only for one tax year, so taxpayers should apply early—Form 8802/6166 in the U.S., CRA letters in Canada, and TRCs from India—and provide updated certificates to banks and brokers. Amending returns and submitting certificates usually recovers excess withholding, though processing can be slow.
