TRC is the certificate issued by the respective country’s tax department that a person is a tax resident of that country. TRC is usually issued for a specific period.
Why is it necessary?
As per Indian Income Tax Act, in case of payments to non-residents, TRC of the non-resident is compulsory to avail the benefit under DTAA.
Even if TRC is not available for the specific period during which payment is to be made, DTAA benefit is not available.
If DTAA provisions are not exercised, it usually results in more tax paid in India. Further in absence of PAN of the non-resident, Section 206AA comes into play and tax is deducted @20%.