Why tax residency certificates are no longer a holy cow in India

Section 90(4) of the Indian Income-tax Act, 1961 (the IT Act, 1961) (corresponds to Section 159(8) of Income Tax Act, 2025) mandates a non-resident taxpayer to furnish a tax residency certificate (TRC) from their country of residence to claim any relief/benefit under an applicable double taxation avoidance agreement (DTAA) with India.

For several decades, the TRC has occupied a central and near-conclusive position in India’s international tax landscape. The courts have consistently held that once a non-resident produced a valid TRC issued by a competent authority of the resident state, the Indian tax authorities are bound to grant treaty benefits, subject to the fulfilment of other conditions. This provided certainty to foreign investors and established India as a jurisdiction honouring treaty commitments.

The Supreme Court of India’s landmark decision in Authority for Advance Rulings (Income Tax) and Others v Tiger Global International II Holdings (2026) has turned the tide and fundamentally altered that understanding. The court held that a TRC is no longer a conclusive document and does not bar enquiry by the Indian tax authorities into substance, control, or tax avoidance/evasion under India’s statutory general anti-avoidance rules (GAAR)/judicial anti-avoidance rules framework.

The conclusive and binding nature of TRCs finds its foundation in the Central Board of Direct Taxes’ Circular No. 789, issued in 2000. The circular was intended to assure foreign investors regarding the taxation of income from dividends and capital gains under the Indo–Mauritius DTAA. It was clarified that whenever a TRC is issued by the Mauritian authorities, it will constitute sufficient evidence for accepting the status of tax residence and beneficial ownership for applying the DTAA. However, the validity of this circular was challenged and upheld through the decision of the Supreme Court in Union of India and Another v Azadi Bachao Andolan (2003).

In 2013, an amendment to the income tax law was proposed (Section 90(5), to be inserted in the IT Act, 1961 by the Finance Bill, 2013) to expressly provide that “[t]he certificate of being a resident in a country outside India shall be necessary but not a sufficient condition for claiming any relief under the agreement referred to therein”. After receiving pushback from various non-resident investor groups, the proposed amendment was never carried out. The Ministry of Finance issued a press release dated March 1 2013 clarifying that a TRC produced by a resident of a contracting state will be accepted as evidence that they are a resident of that state and the Indian tax authorities cannot question their resident status and look beyond the TRC.

The principle laid down by the Supreme Court in Azadi Bachao Andolan was followed by various courts, including the Supreme Court in Vodafone International Holdings B.V v Union of India and Another (2012), wherein it was held that what is not acceptable is only the use of artificial devices/structures to avail treaty benefits, resulting in double non-taxation. Furthermore, it was held that in view of the earlier circular, a TRC is sufficient evidence to show residence and beneficial interest/ownership, and tax departments cannot deny the benefits of an applicable DTAA.

Against the above backdrop, the Supreme Court’s judgment in Tiger Global has dealt a major blow to non-residents claiming treaty benefits based on TRCs.

The case concerned the Mauritius‑based Tiger Global investment entity, which transferred shares of Flipkart Singapore, deriving substantial value from the Indian operating subsidiary company, and claimed a capital gains exemption under the India–Mauritius DTAA based on TRCs. When the dispute eventually reached the Supreme Court, the Supreme Court made the following observations with respect to construing a TRC as a valid document to claim benefits under DTAAs:

• The amended Indian income tax law (sections 90(2A) and 90(4), IT Act, 1961) considers a TRC merely as an ‘eligibility condition’. The law does not provide that a TRC is sufficient evidence of residency. This was especially so after the introduction of statutory GAAR in 2017 (Chapter X-A of the IT Act, 1961, read with relevant rules).

• A TRC issued by the tax authority of the residence country cannot be construed as binding on any statutory authority/court in India unless a requisite enquiry is made and an independent conclusion is drawn.

• In the facts of Tiger Global, the TRC relied on by the taxpayer was non-decisive, ambiguous, and ambulatory, merely recording futuristic assertions without any independent verification.

In the aftermath of the Tiger Global judgment, the Indian tax authorities are increasingly questioning the sanctity of TRCs and are less likely to extend DTAA benefits automatically based solely on such certificates. Going forward, the courts are also expected to look beyond TRCs and shift the burden more onto the taxpayer claiming treaty benefits.

One such instance came up in a recent ruling of the Delhi Income Tax Appellate Tribunal (Hareon Solar Singapore Private Limited v Deputy Commissioner of Income Tax, 2026). The tribunal noted that after Tiger Global, the production of a TRC merely establishes residence and does not prevent the Department of Revenue from examining beneficial ownership, control, and economic substance.

Thus, the decision of the Supreme Court in Tiger Global stands as a doctrinal watershed. It repositions TRCs as a rebuttable tool, subordinate to GAAR and substance-over-form analysis.

The situation demands deeper analysis and introspection by non-resident investors claiming tax treaty benefits in India.

Even before facing scrutiny and challenge from the Indian tax authorities, non-resident taxpayers are likely to face questions and demands from their counterparties in transactions, which may no longer accept TRCs at face value for determining their withholding tax obligations and may insist on lower withholding tax certificates issued by tax authorities, indemnities, securities, etc. to safeguard their position. Even the cost of obtaining tax indemnity insurance in certain high-risk cases is likely to go up.

Investors should brace themselves for more turbulence in an already volatile global business environment.