The upcoming Direct Tax Code (DTC) 2025 in India is designed to replace the existing Income Tax Act of 1961, aiming to modernize, simplify, and enhance the efficiency of the tax system. Key features include:

1. Residency Simplification: The DTC will reduce residency categories from three (Resident and Ordinarily Resident, Resident but Not Ordinarily Resident, and Non-Resident) to two: Resident and Non-Resident.
2. Unified Financial Year Basis: The concepts of Previous Year and Assessment Year will be removed, with the Financial Year becoming the sole reference point for tax purposes.
3. Integration of Capital Gains: Capital gains may be taxed as regular income, which could increase tax rates for some taxpayers.
4. Updated Income Terminology: “Income from Salary” will be renamed as “Employment Income,” and “Income from Other Sources” will become “Income from Residuary Sources,” though the main income categories remain unchanged.
5. Expanded Audit Eligibility: In addition to Chartered Accountants (CA), Company Secretaries (CS) and Cost and Management Accountants (CMA) may also be authorized to conduct tax audits, enhancing accessibility and competition in tax audit services.
6. Streamlined Sections and Schedules: Fewer sections in the tax code aim to simplify compliance and reduce litigation complexity.
7. Revised TDS and TCS Rules: Tax Deducted at Source (TDS) and Tax Collected at Source (TCS) will apply more broadly across income types, with lower rates but wider applicability.
8. Reduction in Exemptions: Many existing exemptions and deductions are likely to be phased out, broadening the tax base and simplifying filing processes. The goal is to increase the taxpayer base from about 1% to around 7.5% of the population.
9. Corporate Tax Rate Harmonization: A unified tax rate for domestic and foreign companies aims to encourage foreign investment by creating a level playing field.
10. Lowered Tax Burden for Salaried Employees: Salaried employees may see a reduced tax burden, addressing the long-standing issue of a disproportionate tax load on this group.

The DTC 2025 is anticipated to take effect in the fiscal year 2025-26, signaling a major evolution in India’s tax framework that could impact compliance, competitiveness, and transparency across sectors.

An unexpected issue emerged, in which it was stressed that technicalities made via the Department and not the assessee must not be put forth by the department to defeat the legal rights and entitlements of the assessees.

It was carried out by the Bombay High Court that the related Revenue officials (respondent) could not refuse the advantage of the accrued Input tax credit to the taxpayer (applicant) merely because the specified forms had not been furnished electronically but furnished manually.

Since the GST ITC-02 Form was not available for electronic filing, neither the applicant nor TDN could be held responsible for not submitting Form GST ITC-02 electronically on the department’s common portal, the Court stated.

Consequently, the Division Bench of Justice M.S. Sonak and Justice Jitendra Jain asked the respondents to regard the manually filed forms via the TDS as expeditiously as feasible.

The bench therefore specified that if on the due consideration of manual forms the respondents still discovered that the ITC of Rs 18,30,58,995 was not due or was claimed erroneously of and used by the applicant, they are free to pass a relevant order.

Case Facts

The applicant has the business of providing internet services, entered in the Business Transfer Agreement (BTA) with Tikona Digital Networks (TDN), where TDN business was transferred before the applicant as a present concern. Hence TDN approached the AO jurisdictional notifying them of the non-availability of Form ITC-02 functionality on the department’s common portal.

TDN has the objective to transfer unused credit in its electronic credit ledger on the date of slump sale before the applicant. However as Form ITC-02 was not available till now on the GSTIN portal for filing, TDN can not follow with the electronic filing need of the mentioned form.

The applicant in the second half of the year 2017 claimed the ITC to the tune of Rs 18.30 crores. As the respondents do not incur the available electronic facility to file Form GST ITC-02, the applicant has furnished the form manually.

The applicant has received a notice after 6 years alleging that the applicant has erroneously claimed and used the ITC of Rs 18 crores, as the applicant manually furnished the forms. Therefore the applicant has approached the HC contesting the notice and the demand asked from the Respondent department.

High Court Observations

The Bench remarked that the only claim made in the show cause notice is related to the non-electronic submission of Form GST ITC-02 on the department’s shared portal.

The Bench expressed the view that these allegations would be valid if the Department’s shared portal were operating properly, allowing TDN or the petitioners to submit Form GST ITC-02 electronically through it.

The Bench acknowledged that the TDN or the petitioner was unable to submit Form GST ITC-02 on the department’s shared portal during the applicable period due to functionality problems associated with that portal.

Therefore the Bench noted that after the same has been considered that Form GST ITC-02 was not e-filed on the shared portal of the department as it was not operational to generate and accept the Forms, the issuance of the Show cause notice (SCN) is to practice of excessive jurisdiction under the CGST act and the rules.

The Bench noted that the petitioner only claimed the ITC after the CA’s certificate was submitted, which confirmed that the business transfer from TDN to the Petitioner included specific provisions for transferring liabilities.

Respondents can have processed the forms and wished on the issued of ITC if they had problems with the Form GST ITC-02 or GSTR-3B manual filing, the bench said.

The bench outlines that the respondents on the specious plea can not have avoided processing the manual return that Section 18(3) & Rule 41(1) of the CGST Act and Rules identify only electronic filing and not manual filing.

Similarly, the Bench determined that the Allahabad High Court observed that, at the time when BTA transferred its business along with liabilities to the petitioner, the option to file Form IT-02 was not accessible on the department’s common portal, thus ruling that the petitioner should not be denied the ITC.

Moreover, the Gujarat High Court, Delhi High Court, and Bombay High Court determined under the same conditions that the Department’s failure to recognize and transfer the ITC owed to the petitioner was highly unlawful, the Bench noted.

It was therefore specified that the respondents were bound from duty to take cognizance of the decisions of the Allahabad, Gujarat, and Delhi High Courts in dealing with the almost same problem related to the applicant, the Bench quashed the SCN asking for the ITC and permitted the petition of the taxpayer.

It was specified by the Bench that if the respondent concludes that the Input tax credit (ITC) was claimed erroneously. Then the respondents can take action by complying with natural justice.

Probing into a fake Pune based company registered in the name of an auto rickshaw driver, officials of the Directorate of GST Intelligence (DGGI) have unearthed a major fake GST firm scam to the tune of Rs 5,000 crores to Rs 8,000 crores.

Rushi Prakash (39), an officer at DGGI, Pune Zonal Unit, lodged the FIR in this case at the Koregaon Park police station in Pune city on Friday.

The prime accused Ashrafbhai Ibrahimbhai Kalavadiya (50), resident of Surat, Gujarat, is alleged to have opened as many as 246 fake GST firms, using which he committed the multi-crore fraud.

Along with Kalvadiya, police have also booked Nitin Barge, Faizal Mevalal, Nizamuddin Khan, Amit Tejbahadur Singh of Ulhas Nagar, Rahul Baraiyya, Kaushik Makwana, Jitendra Gohel and others in this case, under Indian Penal Code (IPC) sections 420, 465, 467, 471, 120 (b), 34 and sections of the Information Technology Act, the FIR stated.

As per police records, in October 2023, the DGGI team came across suspicious transactions of online accounts of ‘Pathan Enterprises’ located at Girni Shewalwadi on Pune Solapur highway in Pune.

During investigation, DGGI found that Pathan Enterprises did not exist at this spot, or anywhere else. However, it was registered in the name of Pathan Shabbir Khan Anwar Khan, a resident of Bhavnagar in Gujarat. When the DGGI team found Khan, he turned out to be an auto rickshaw driver, who was completely unaware of the company registered in his name.

Further probe revealed that multiple fake GST firms were registered with a particular mobile number and an email address of Pathan Enterprises Company. While checking the suspicious records, the investigation team came across an ICICI bank account in Rajkot, Gujarat, registered in the name of one Jeet Kukadiya. However, when GST officials checked with Kukadiya, he was found to be working as a private security guard and had opened this bank account for accused Kaushik Makwana and Jitendra Gohel. Kukadiya himself never made any financial transactions from this bank account.

Based on leads obtained during further investigation, the DGGI teams carried out raids in Pune, Mumbai, Rajkot and Bhavnagar cities.

A probe revealed that the accused Kalvadiya was operating Pathan Enterprises and several other fake firms.

Subsequently, he was arrested from a hotel in Mira Bhayandar in Mumbai on March 12, 2024. As many as 21 cell phones, two laptops, 11 sim cards, bank debit cards in the name of different persons, cheque books and rubber stamps in the name of different companies were seized from his possession during searches.

A probe revealed that he had allegedly used the seized material for forming fake GST firms and fraudulent GST and bank transactions. A probe also revealed that Kalavadiya was “buying” fake GST firms, bank accounts and sim cards to generate fake GST bills. But he never did any real business of any products and never paid any goods and services tax to the government.

DGGI sleuths arrested him under sections of the Goods and Services Tax Act. He was produced before a court in Pune on March 13, 2024, and is currently under judicial custody in Yerwada jail.

Meanwhile, further probe revealed that the accused Nitin Barge of Mumbai was allegedly looking after all bank accounts and fake GST bills of fake firms operated by Kalavadiya. Mevalal allegedly handled the cash transactions for Kalavadiya.

The accused Nizamuddin Khan, also from Mumbai, was allegedly providing him the sim cards and bank accounts opened fraudulently using KYC documents of common people. Amit Singh allegedly assisted Kalavadiya in opening fake GST firms. Rahul Bariyya was allegedly selling fake GST firms and bank accounts to people, the FIR mentions.

The probe so far revealed that Kalavadiya has opened 246 fake GST firms including Pathan Enterprises. As per the FIT, he allegedly committed a fraud of Rs 20.75 crores through Pathan Enterprises and cheated the government to the tune of Rs 5,000 crores to Rs 8000 crores through all 246 fake GST firms by evading tax between September 2018 and March 2024.

The Delhi High Court has held that the power to issue notice for scrutiny assessment under Section 143(2) of the Income Tax Act, 1961 is not restricted to the Assessing Officer or the officers of National Faceless Assessment Centre (NaFAC) alone.

As per the statute, a notice for scrutiny assessment under Section 143(2) of the Act can be issued by the “Assessing Officer or the prescribed income-tax authority, as the case may be”

In the case at hand, notice under Section 143(2) of the Act was issued by the Assistant Commissioner of Income Tax/ Deputy Commissioner of Income Tax (International Taxation).

Petitioner assailed this notice on the ground of having been issued without jurisdiction. It submitted that the expression “as the case may be” indicates that in case, where the jurisdiction is vested within the Assessing Officer, that officer alone can issue notice under Section 143(2) of the Act.

It was argued that in such cases, it would not be open for the “prescribed income-tax authority” to issue a notice under Section 143(2) of the Act.

Disagreeing, a division bench of Justices Vibhu Bakhru and Swarana Kanta Sharma held, “A plain reading of Section 143(2) of the Act clearly indicates that either of the two authorities – either the “Assessing Officer” or “the prescribed income-tax authority” – can issue a notice under Section 143(2) of the Act. The expression “as the case may be” also indicates the same.”

Revenue also pointed to notifications issued by the Central Board of Direct Taxes in exercise of powers under Rule 12E of the Income-Tax Rules, 1962, authorizing the Assistant Commissioner of Income Tax/ Deputy Commissioner of Income Tax (International Taxation), to act as the “prescribed income-tax authority” under Section 143(2) of the Act.

The High Court also rejected the contention that other than the Assessing Officer, only the authorized Income Tax Officers of the National Faceless Assessment Centre (NaFAC) can issue a notice under Section 143(2) of the Act.

It held, “This proposition is not supported by the plain language of Section 143(2) of the Act or Rule 12E of the Rules. Rule 12E of the Rules does not confine the power of the CBDT to authorise only the Income Tax Officers of the NaFAC as the prescribed authority for the purposes of Section 142(1) of the Act.”

Accordingly, the petition was dismissed.

When purchasing property from a Non-Resident Indian (NRI) seller, the buyer is required to deduct Tax Deducted at Source (TDS) on the sale amount. The TDS rate and procedures are different compared to transactions involving resident sellers. Here’s a breakdown of the process:

1. TDS Rate for NRI Seller

• Standard Rate: TDS is typically deducted at a rate of 20% plus applicable surcharge and cess on the total sale consideration if the property is classified as a long-term capital asset (held for more than 2 years).
• Short-Term Capital Gains: If the property is held for less than 2 years, the TDS rate is 30% plus applicable surcharge and cess.
• Important Note: These rates are subject to change as per the Finance Act. Ensure you verify the latest rates.

2. Procedure for Deducting TDS

• Obtain TAN: The buyer must obtain a Tax Deduction and Collection Account Number (TAN) before deducting TDS.
• Deduction of TDS: TDS should be deducted at the time of making the payment to the NRI seller, whether in advance or in installments.
• Deposit of TDS: The deducted TDS should be deposited to the government account using Form 26QB within 30 days from the end of the month in which TDS was deducted.
• Issue of TDS Certificate: The buyer must issue Form 16A (TDS Certificate) to the NRI seller within 15 days from the due date of furnishing the challan-cum-statement in Form 26QB.

3. Lower TDS Certificate Process

An NRI seller may apply for a lower or nil deduction certificate under Section 197 of the Income Tax Act if the actual tax liability is expected to be lower than the standard TDS rate.

• Application by NRI Seller: The NRI seller can apply for a lower TDS certificate from the jurisdictional Assessing Officer in India. The application is made using Form 13.
• Processing Time: The issuance of a lower TDS certificate can take a few weeks to a few months, depending on the assessment and verification process.
• Issuance of Certificate: Once approved, the Assessing Officer issues the lower or nil TDS certificate specifying the reduced rate of TDS.
• Furnishing to Buyer: The NRI seller must furnish this certificate to the buyer, who will then deduct TDS at the rate mentioned in the certificate instead of the standard rate.

4. Filing of TDS Return

• The buyer needs to file TDS returns on Form 27Q quarterly.
• The return should include details of the NRI seller, the property transaction, the amount paid, and the TDS deducted.

5. Non-Compliance Penalties

• Failure to deduct or deposit TDS may result in interest and penalties. The buyer may also be deemed an “assessee in default,” making them liable to pay the TDS amount along with interest.

6. Things to Keep in Mind

• Consultation: It is advisable to consult a tax professional or legal expert to ensure compliance with the regulations.
• Documentation: Ensure proper documentation, including the NRI status of the seller, property details, and any certificates related to TDS.
• Payment Consideration: TDS is deducted on the entire sale consideration, not just the capital gain portion.

This process ensures that the transaction is compliant with Indian tax laws, and both the buyer and seller avoid any future complications.

Paying rent to a Non-Resident Indian (NRI) involves specific tax deduction requirements under Indian tax laws. This article details the TDS obligations on rent payments to NRIs and explains the process for obtaining a lower TDS deduction certificate.

TDS on Rent Payment to NRIs

Deductor:
Any individual paying rent to an NRI must deduct tax at source under Section 195 of the Income Tax Act, 1961.

Deductee:
Tax must be deducted if the recipient is an NRI and the rental income is chargeable to tax in India, irrespective of any Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the NRI. Since the property is located in India, the rental income is taxable in India.

Rate of TDS:

1. Standard Rate: As per the Finance Act 2022, the standard rate is 30% plus applicable Surcharge and Health & Education Cess, amounting to 31.20%.
2. DTAA Rate: If a DTAA is in force, tax should be deducted at the rate specified in the Finance Act or the DTAA, whichever is more beneficial to the assessee.

Time of Deduction:
TDS must be deducted at the time of payment or credit of income, whichever is earlier. This rule applies even if the amount is credited to a ‘Suspense Account.’

Deposit of Tax Deducted at Source:
TDS is required to be deposited to the credit of the central government through Challan ITNS 281 within 7 days from the end of the month in which the tax was deducted. For deductions made in March, the deposit deadline is 30th April of the relevant assessment year.

Statement for Tax Deducted at Source:
The deductor must file a quarterly statement of tax deducted at source in Form 27Q by the due dates specified under Rule 31A.

Certificate of TDS:
The deductor shall issue a certificate of tax deducted at source in Form 16A within 15 days from the due date of furnishing the statement of tax deducted at source under Rule 31.

How to Obtain a Lower TDS Deduction Certificate

In some cases, the NRI landlord may be eligible for a lower TDS rate than the standard 31.20%. To avail of this benefit, the NRI must obtain a certificate for lower TDS deduction from the Income Tax Department.

Steps to Obtain a Lower TDS Deduction Certificate:

1. Application Form:

• The NRI must file an application in Form 13 to the Assessing Officer (International Taxation) under whose jurisdiction their case falls. The form should include details such as the name and address of the applicant, PAN, status (resident/non-resident), and nature and amount of income.

1. Supporting Documents:

• The NRI must submit supporting documents along with the application form, including:
  • Proof of income (such as rental agreements)
  • Computation of income
  • Past tax returns (if applicable)
  • Details of investments or other deductions claimed

1. Submission:

• The completed application form, along with the supporting documents, must be submitted to the Assessing Officer. This can be done online through the Income Tax Department’s website or physically at the respective office.

1. Assessment:

• The Assessing Officer will review the application and documents to determine the appropriate TDS rate. If the officer is satisfied with the evidence provided, a certificate specifying the lower TDS rate will be issued.

1. Issuance of Certificate:

• Upon approval, the Assessing Officer will issue a certificate under Section 197 of the Income Tax Act, specifying the lower TDS rate applicable to the NRI. This certificate must be presented to the tenant (deductor) to apply the reduced TDS rate on future rent payments.

1. Validity:

• The lower TDS deduction certificate is usually valid for the financial year in which it is issued. The NRI may need to reapply for subsequent years if they continue to qualify for the reduced rate.

Example:

Ms. Singh, an NRI, receives ₹50,000 per month as rent from her property in India. The standard TDS rate applicable is 31.20%, amounting to ₹15,600 per month. Ms. Singh applies for a lower TDS deduction certificate, providing necessary documents to the Assessing Officer. Upon review, the officer issues a certificate allowing a reduced TDS rate of 20%. The tenant must then deduct TDS at 20% instead of 31.20%, reducing the monthly TDS to ₹10,000.

Conclusion

Understanding the TDS obligations and the process for obtaining a lower TDS deduction certificate is crucial for NRIs receiving rental income from properties in India. Compliance with the stipulated rates, timely deductions, and proper documentation ensures smooth transactions and avoids penalties.

The above article has been written by CA Neeraj Bansal and he can be reach out at +91-971804655.

In India, the Income Tax Act governs the taxation of individuals based on their income, providing two distinct tax regimes: the Old Tax Regime and the New Tax Regime. Each regime offers unique advantages and considerations, impacting how taxpayers calculate their taxable income and their overall tax liability. This article explores the differences between the Old Tax Regime and New Tax Regime for the financial year 2023-24, emphasizing their tax structures, benefits, and the specific advantage provided by Section 87A.

Understanding the Old Tax Regime

The Old Tax Regime, also known as the existing tax structure, has been in place for many years. It allows taxpayers to avail various deductions and exemptions under different sections of the Income Tax Act. These deductions are crucial as they reduce the taxable income, thereby lowering the overall tax liability. Key deductions available under the Old Tax Regime include:

• Section 80C: Deductions for investments in instruments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), Life Insurance Premiums, Equity Linked Savings Scheme (ELSS), etc., up to ₹1.5 lakh per annum.
• Section 80D: Deductions for health insurance premiums paid for self, family, and parents, up to specified limits.
• Section 24: Deductions for interest paid on housing loans, up to specified limits.
• HRA (House Rent Allowance): Exemption available for rent paid if HRA forms part of salary.

These deductions significantly impact the taxable income, allowing taxpayers to potentially reduce their tax outgo substantially. The tax rates under the Old Tax Regime for individuals below 60 years for FY 2023-24 are structured as follows:

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹10,00,000	20%
Above ₹10,00,000	30%

Senior citizens (60 years and above but below 80 years) and super senior citizens (80 years and above) have different slabs and rates tailored to their age brackets.

Introduction of the New Tax Regime

The New Tax Regime was introduced from FY 2020-21 onwards to simplify the tax structure by eliminating most deductions and exemptions. This regime offers a lower number of tax slabs but with slightly different rates compared to the Old Tax Regime. The idea behind the New Tax Regime is to provide a straightforward tax calculation process without the need for detailed tax planning around deductions. The tax rates under the New Tax Regime for FY 2023-24 are structured as follows:

Income Slab	Tax Rate
Up to ₹2,50,000	Nil
₹2,50,001 to ₹5,00,000	5%
₹5,00,001 to ₹7,50,000	10%
₹7,50,001 to ₹10,00,000	15%
₹10,00,001 to ₹12,50,000	20%
Above ₹12,50,000	25%

Key Differences Between the Old Tax Regime and New Tax Regime

1. Tax Structure:

• Old Tax Regime: Offers multiple tax slabs with higher rates applicable to higher income brackets. Taxpayers can reduce their taxable income significantly by availing deductions under various sections like 80C, 80D, etc.
• New Tax Regime: Provides a simpler tax structure with fewer slabs but slightly different rates. The regime does not allow most deductions and exemptions, aiming for a more straightforward tax calculation process.

2. Deductions and Exemptions:

• Old Tax Regime: Allows taxpayers to claim deductions under sections such as 80C, 80D, 24, etc., which reduce taxable income and subsequently reduce the tax liability.
• New Tax Regime: Does not allow most deductions and exemptions except those specified by the government. Tax calculation is based on gross income without adjustments for deductions.

3. Impact on Tax Liability:

• Old Tax Regime: Often results in a lower tax liability for taxpayers who can utilize deductions effectively to reduce their taxable income.
• New Tax Regime: May lead to higher tax liability compared to the Old Tax Regime, especially for those who would otherwise benefit from deductions under the old structure.

4. Section 87A Benefit:

Under both the Old and New Tax Regimes, individuals with total income up to ₹5,00,000 are eligible for a rebate under Section 87A. This rebate directly reduces the tax liability after calculating taxes:

• Rebate Amount: The rebate is the lower of 100% of the income tax liability or ₹12,500.
• Applicability: The rebate is available to resident individuals (below 60 years) whose total income does not exceed ₹5,00,000. It effectively reduces the tax burden for eligible taxpayers, making the regime more favorable, especially for lower income groups.

Example Scenario: Impact of Section 87A Benefit

Let’s consider an example where an individual’s total income after deductions under the Old Tax Regime is ₹4,80,000:

• Tax Calculation without Rebate:
• Income up to ₹2,50,000: Nil tax
• Income from ₹2,50,001 to ₹4,80,000: Tax at 5% on ₹2,30,000 (₹4,80,000 – ₹2,50,000) = ₹11,500
• Total Tax Liability = ₹11,500
• Tax Calculation with Section 87A Rebate:
• After applying the rebate of ₹11,500 (lower of 100% of tax liability or ₹12,500), the tax payable is reduced to Nil.

Conclusion

Understanding the differences between the Old Tax Regime and New Tax Regime for FY 2023-24, including the benefit of Section 87A, is crucial for taxpayers to make informed decisions about their tax planning strategies. Each regime offers unique benefits and considerations, catering to different taxpayer profiles and financial situations. Whether to opt for the Old Tax Regime with its deductions and exemptions or the New Tax Regime for its simplicity and fixed tax structure depends on individual circumstances and tax planning goals. By evaluating these factors carefully, taxpayers can optimize their tax liabilities while ensuring compliance with tax laws effectively. The inclusion of Section 87A ensures that eligible taxpayers receive additional relief, further influencing tax planning decisions.

Investing in equity shares can be lucrative, but it also comes with tax implications that investors need to understand. This article delves into the taxation rules for the sale of listed and unlisted equity shares, distinguishing between short-term and long-term capital gains, and exploring how investors can save on capital gains tax under Section 54F of the Income Tax Act.

Table of Contents

1. Introduction to Equity Share Taxation
2. Short-Term and Long-Term Capital Gains
   • Definitions and Holding Periods
   • Tax Rates for Listed Equity Shares
   • Tax Rates for Unlisted Equity Shares
3. Taxation on Sale of Listed Equity Shares
   • Short-Term Capital Gains (STCG)
   • Long-Term Capital Gains (LTCG)
4. Taxation on Sale of Unlisted Equity Shares
   • Short-Term Capital Gains (STCG)
   • Long-Term Capital Gains (LTCG)
5. Saving Capital Gains Tax Under Section 54F
   • Eligibility Criteria
   • Conditions and Compliance
   • Calculation and Exemption
6. Practical Scenarios and Examples
   • Example 1: Sale of Listed Equity Shares
   • Example 2: Sale of Unlisted Equity Shares
   • Example 3: Utilizing Section 54F for Tax Savings
7. Documentation and Compliance
   • Required Documentation for Capital Gains Calculation
   • Maintaining Records for Section 54F Exemption
8. Penalties for Non-Compliance
   • Consequences of Incorrect Capital Gains Reporting
   • Penalties and Legal Implications
9. Conclusion
   • Recap of Key Points
   • Final Thoughts on Managing Equity Share Transactions and Taxes

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Introduction to Equity Share Taxation

Equity shares, or stocks, represent ownership in a company and are a common investment vehicle. When these shares are sold, the transaction can result in either a profit or a loss. If a profit is realized, it is termed a capital gain and is subject to tax under the Income Tax Act, 1961. The tax treatment varies depending on the type of equity (listed or unlisted), the holding period, and the gains’ nature (short-term or long-term).

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Short-Term and Long-Term Capital Gains

Definitions and Holding Periods

• Short-Term Capital Gains (STCG): Gains from the sale of equity shares held for 12 months or less.
• Long-Term Capital Gains (LTCG): Gains from the sale of equity shares held for more than 12 months.

The holding period is critical in determining the tax rate applicable to the gains.

Tax Rates for Listed Equity Shares

• STCG on Listed Shares: Taxed at a flat rate of 15% under Section 111A.
• LTCG on Listed Shares: Taxed at 10% (without the benefit of indexation) on gains exceeding ₹1 lakh under Section 112A.

Tax Rates for Unlisted Equity Shares

• STCG on Unlisted Shares: Taxed as per the applicable slab rates of the investor.
• LTCG on Unlisted Shares: Taxed at 20% with the benefit of indexation under Section 112.

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Taxation on Sale of Listed Equity Shares

Short-Term Capital Gains (STCG)

When listed equity shares are sold within a year, the resulting gains are classified as STCG and are taxed at a flat rate of 15% under Section 111A. Additionally, applicable surcharges and cess are levied.

Long-Term Capital Gains (LTCG)

For listed equity shares held for more than a year, LTCG exceeding ₹1 lakh are taxed at 10% without the benefit of indexation under Section 112A. Gains up to ₹1 lakh are exempt from tax.

Example Calculation:

1. Purchase Price: ₹5,00,000
2. Sale Price: ₹8,00,000
3. LTCG: ₹3,00,000
4. Taxable LTCG: ₹3,00,000 – ₹1,00,000 (exemption) = ₹2,00,000
5. Tax Liability: 10% of ₹2,00,000 = ₹20,000

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Taxation on Sale of Unlisted Equity Shares

Short-Term Capital Gains (STCG)

For unlisted equity shares held for 12 months or less, the gains are considered STCG and are taxed according to the individual’s income tax slab rates. This can range from 5% to 30%, depending on the total taxable income of the investor.

Long-Term Capital Gains (LTCG)

Unlisted shares held for more than 12 months qualify as LTCG and are taxed at 20% with the benefit of indexation under Section 112.

Example Calculation with Indexation:

1. Purchase Price: ₹5,00,000
2. Indexed Cost of Acquisition (assuming an indexation factor of 1.25): ₹6,25,000
3. Sale Price: ₹10,00,000
4. LTCG: ₹10,00,000 – ₹6,25,000 = ₹3,75,000
5. Tax Liability: 20% of ₹3,75,000 = ₹75,000

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Saving Capital Gains Tax Under Section 54F

Eligibility Criteria

Section 54F provides an exemption from LTCG tax on the sale of any capital asset other than a residential house if the net consideration is reinvested in purchasing or constructing a residential house property.

Conditions and Compliance

• The taxpayer should not own more than one residential house property on the date of transfer of the original asset.
• The new residential house property should be purchased within one year before or two years after the date of transfer or constructed within three years.
• The entire net consideration should be reinvested. If only a part of the net consideration is reinvested, the exemption is proportionate.

Calculation and Exemption

Example Calculation:

1. Sale of Unlisted Shares: ₹50,00,000
2. Indexed Cost of Acquisition: ₹20,00,000
3. LTCG: ₹30,00,000
4. Investment in New Residential Property: ₹40,00,000

Since the entire net consideration is reinvested, the full LTCG of ₹30,00,000 is exempt under Section 54F.

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Practical Scenarios and Examples

Example 1: Sale of Listed Equity Shares

Mr. A sells listed shares worth ₹10,00,000 held for 14 months. The purchase price was ₹7,00,000. His LTCG is ₹3,00,000. Taxable LTCG (₹3,00,000 – ₹1,00,000) is ₹2,00,000. The tax payable at 10% is ₹20,000.

Example 2: Sale of Unlisted Equity Shares

Ms. B sells unlisted shares for ₹15,00,000 held for 5 years. The indexed cost is ₹8,00,000. Her LTCG is ₹7,00,000. The tax payable at 20% is ₹1,40,000.

Example 3: Utilizing Section 54F for Tax Savings

Mr. C sells unlisted shares for ₹60,00,000. The indexed cost is ₹30,00,000, resulting in an LTCG of ₹30,00,000. He invests ₹50,00,000 in a new residential property. The entire LTCG of ₹30,00,000 is exempt under Section 54F.

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Documentation and Compliance

Required Documentation for Capital Gains Calculation

• Purchase and sale deeds of the shares
• Demat account statements
• Brokerage and transaction statements
• Proof of payment for the new residential property (for Section 54F)

Maintaining Records for Section 54F Exemption

• Proof of investment in the new residential property
• Completion certificate or possession letter for the new house
• Relevant banking records for fund transfer

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Penalties for Non-Compliance

Consequences of Incorrect Capital Gains Reporting

Incorrect reporting of capital gains can lead to scrutiny, penalties, and interest charges. Accurate calculation and timely payment are crucial.

Penalties and Legal Implications

• Interest under Section 234A/B/C for default in filing and payment.
• Penalties under Section 271F for inaccurate reporting.
• Possible prosecution under severe non-compliance cases.

About the Author:-

Mr. CA Neeraj Bansal is a practicing Chartered Accountant and owner of the CA Firm “N C Agrawal and Associates”. He can be reached at his mobile +91-9718046555 or info@ncagrawal.com for any tax related help, Tax Filing and Company Registration.

Purchasing property from a Non-Resident Indian (NRI) involves several tax implications, including the deduction of Tax Deducted at Source (TDS). This article explores the nuances of TDS on property transactions involving NRIs and the process for applying for a lower TDS deduction.

Table of Contents

1. Introduction
   • Importance of Understanding TDS in NRI Property Transactions
   • Overview of Relevant Tax Laws
2. TDS on Property Purchase from NRI
   • Applicable TDS Rates
   • Calculating TDS on Property Purchase
   • Payment and Reporting of TDS
3. Lower TDS Deduction
   • Concept of Lower TDS Deduction
   • Eligibility Criteria for Lower TDS Deduction
   • Application Process for Lower TDS Deduction
4. Documentation and Compliance
   • Required Documentation for TDS Deduction
   • Ensuring Compliance with Tax Laws
5. Practical Scenarios and Examples
   • Scenario 1: Standard TDS Deduction
   • Scenario 2: Lower TDS Deduction
6. Penalties for Non-Compliance
   • Consequences of Incorrect TDS Deduction
   • Penalties and Legal Implications
7. Conclusion
   • Recap of Key Points
   • Final Thoughts on TDS Management in NRI Property Transactions

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Introduction

Importance of Understanding TDS in NRI Property Transactions

When purchasing property from an NRI, buyers must adhere to specific tax regulations, particularly concerning TDS. Understanding these requirements is crucial to avoid penalties and ensure a smooth transaction.

Overview of Relevant Tax Laws

According to the Indian Income Tax Act, TDS must be deducted when a buyer makes a payment to an NRI for the purchase of immovable property. This is to ensure that taxes due on the capital gains from the sale are collected at the source.

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TDS on Property Purchase from NRI

Applicable TDS Rates

The TDS rates on the purchase of property from an NRI are higher compared to transactions involving resident Indians. The rates are as follows:

• Long-Term Capital Gains: If the property is held by the NRI for more than two years, a TDS of 20% (plus applicable surcharge and cess) is levied.
• Short-Term Capital Gains: If the property is held for two years or less, a TDS of 30% (plus applicable surcharge and cess) is applicable.

Calculating TDS on Property Purchase

TDS is calculated on the sale consideration or the capital gains, whichever is higher. The buyer must obtain the details of the capital gains from the NRI seller to ensure accurate TDS deduction.

Payment and Reporting of TDS

The buyer is responsible for deducting TDS at the time of making the payment to the NRI seller. The deducted amount must be deposited with the government using Form 27Q within 30 days from the end of the month in which the deduction is made. The buyer must also provide a TDS certificate (Form 16A) to the seller.

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Lower TDS Deduction

Concept of Lower TDS Deduction

In some cases, the NRI seller may be eligible for a lower TDS deduction if their actual tax liability is less than the standard TDS rate. This can be due to lower capital gains or applicable deductions and exemptions.

Eligibility Criteria for Lower TDS Deduction

To qualify for a lower TDS deduction, the NRI seller must demonstrate that their total income, including capital gains from the property sale, warrants a lower tax liability than the prescribed TDS rate.

Application Process for Lower TDS Deduction

1. Application to Assessing Officer: The NRI seller must apply to the Assessing Officer (AO) in their jurisdiction using Form 13 for a certificate of lower TDS deduction.
2. Submission of Documents: The application should be supported by documents such as the sale agreement, computation of capital gains, proof of purchase price, and other relevant financial details.
3. Issuance of Certificate: Upon review, the AO may issue a certificate specifying the lower TDS rate applicable to the transaction.
4. Informing the Buyer: The NRI seller must provide the lower TDS certificate to the buyer to enable them to deduct TDS at the lower rate specified.

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Documentation and Compliance

Required Documentation for TDS Deduction

To ensure compliance, both the buyer and the NRI seller must maintain the following documents:

• Sale agreement or deed
• PAN details of both parties
• Form 13 (if applying for lower TDS)
• Lower TDS certificate (if applicable)
• Proof of TDS payment (Form 27Q)
• TDS certificate issued to the seller (Form 16A)

Ensuring Compliance with Tax Laws

Compliance with tax laws involves accurate calculation, timely deduction, and proper reporting of TDS. Non-compliance can result in penalties and interest charges.

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Practical Scenarios and Examples

Scenario 1: Standard TDS Deduction

Example: Mr. A, an NRI, sells a property to Mr. B for ₹1 crore. The property was held for three years, resulting in long-term capital gains.

• Sale consideration: ₹1 crore
• TDS rate: 20% + surcharge and cess
• Total TDS: Approx. ₹22.88 lakh (assuming 20% TDS + 4% cess)

Mr. B deducts ₹22.88 lakh as TDS and deposits it with the government.

Scenario 2: Lower TDS Deduction

Example: Mr. A, an NRI, estimates his capital gains tax liability to be lower due to indexed cost of acquisition. He applies for a lower TDS certificate.

• Sale consideration: ₹1 crore
• Lower TDS rate approved: 10%
• Total TDS: ₹10 lakh

Mr. B deducts ₹10 lakh as TDS based on the lower TDS certificate and deposits it with the government.

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Penalties for Non-Compliance

Consequences of Incorrect TDS Deduction

Incorrect or non-deduction of TDS can lead to severe penalties, including:

• Interest on the amount not deducted/paid.
• Penalty equivalent to the TDS amount not deducted.
• Disallowance of the expense in the computation of taxable income.

Penalties and Legal Implications

Non-compliance may also result in prosecution under the Income Tax Act, leading to additional financial and legal consequences.

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Conclusion

Recap of Key Points

1. Higher TDS Rates: Property purchases from NRIs attract higher TDS rates (20% for long-term and 30% for short-term capital gains).
2. Lower TDS Deduction: NRIs can apply for a lower TDS deduction if their tax liability is less than the standard rate.
3. Compliance: Accurate calculation, timely deduction, and proper reporting are essential for compliance.

Final Thoughts on TDS Management in NRI Property Transactions

Understanding and managing TDS in property transactions involving NRIs is crucial for both buyers and sellers. Ensuring compliance with tax regulations, maintaining proper documentation, and seeking professional advice when necessary can help facilitate smooth and lawful transactions.

1. NRI Meaning:

• Non-Resident Indian (NRI) refers to an Indian citizen or a person of Indian origin who resides outside India for employment, business, or any other purpose indicating an indefinite stay abroad.

2. NRI Status Calculation Process:

• NRI status is determined based on the individual’s physical presence in India during a financial year (April 1 to March 31).
• If an individual stays in India for less than 182 days in a financial year, they are considered an NRI for that year subject to meet out other conditions of status determination

3. Income Tax Applicable to NRIs:

• NRIs are taxed on income earned or accrued in India, such as income from property, capital gains, interest, dividends, etc.
• Income earned outside India is generally not taxable in India for NRIs.
• The tax rates applicable to NRIs are the same as those for residents of India.

4. Interest in NRE and NRO Accounts:

• NRE (Non-Resident External) accounts: Funds in NRE accounts are freely repatriable (can be transferred abroad) and are exempt from Indian taxes, including interest earned.
• NRO (Non-Resident Ordinary) accounts: Funds in NRO accounts are not freely repatriable, and the interest earned is subject to Indian taxes.

5. Double Taxation Avoidance Agreements (DTAA):

• DTAA aims to prevent double taxation of income in two countries.
• NRIs can benefit from DTAA provisions by claiming tax credits or exemptions in one country for taxes paid in the other country.

6. High-Value Transactions to be Kept in Mind by NRIs:

High-value transactions for NRIs can include various activities or financial transactions that involve significant sums of money or assets. Here are some examples of high-value transactions that NRIs should be mindful of:

Property Transactions:

• Purchase or sale of real estate: NRIs investing in or disposing of property in India should be aware of the high value associated with real estate transactions. This includes buying, selling, or gifting property.
• Rental income: NRIs earning rental income from properties in India should keep track of the high-value transactions associated with rental payments, lease agreements, etc.

Investments:

• Stock Market Investments: NRIs investing in the Indian stock market may engage in high-value transactions through buying or selling shares, mutual funds, or other securities.
• Fixed Deposits and Financial Instruments: Investments in fixed deposits, bonds, debentures, and other financial instruments may involve significant sums of money.

Banking and Remittances:

• Transfer of Funds: NRIs transferring large sums of money to or from India for investment, business, or personal purposes should be aware of the high-value nature of these transactions.
• Foreign Currency Accounts: Opening or closing foreign currency accounts, especially NRE and NRO accounts, involves high-value transactions that NRIs should monitor.

Loans and Borrowings:

• Loans and Mortgages: NRIs obtaining loans or mortgages from Indian banks or financial institutions for property purchase or other purposes may involve high-value transactions.
• Repayment of Loans: NRIs repaying loans or mortgages to Indian lenders also constitutes high-value transactions.

Business Transactions:

• Setting up Business Entities: NRIs establishing businesses or investing in Indian companies may engage in high-value transactions related to company formation, capital infusion, etc.
• Commercial Contracts: Business agreements, contracts, and transactions involving significant monetary values should be carefully documented and monitored.

Tax Payments and Compliance

• Payment of Taxes: NRIs fulfilling their tax obligations in India, including payment of income tax, property tax, or other levies, may involve high-value transactions.
• Compliance Reporting: Meeting reporting requirements for high-value transactions, such as filing tax returns, disclosing foreign assets, and complying with regulatory norms, is essential for NRIs.

7. Tax Filing for NRIs:

• NRIs are required to file income tax returns in India if their total income exceeds the basic exemption limit.
• Even if income is below the taxable threshold, filing a return may be necessary to claim a refund of taxes withheld at source or if certain types of income (like capital gains) are involved.
• Timely filing of tax returns and compliance with reporting requirements are crucial for NRIs to fulfill their tax obligations in India.

For personalized advice and assistance with tax matters, NRIs should consult with qualified tax professionals or chartered accountants familiar with Indian tax laws and regulations pertaining to NRIs.