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.

When U.S. stocks are given to an employee in India, taxation can be complex due to the international nature of the income and the need to consider tax regulations in both the United States and India. Here’s a simplified overview of how taxation generally works for such cases, keeping in mind that tax laws are subject to change and can vary based on specific circumstances. Always consult a tax professional for advice tailored to your situation.

1. At the Time of Granting Stock Options:

In general, if the stock options are granted to the employee but not vested, there is no immediate tax implication in India. The taxation event occurs at the time of exercise.

2. At the Time of Exercise:

When an employee exercises their stock options (i.e., buys the stock), the difference between the exercise price and the fair market value (FMV) of the shares is taxed as a perquisite (a benefit in addition to salary) under the head “Salaries.” This is subject to income tax according to the individual’s income tax slab rates in India.

3. At the Time of Sale:

When the employee eventually sells the stocks, the gain from the sale is subject to capital gains tax. The tax rate depends on whether it’s a short-term or long-term capital gain:

• Short-term Capital Gains (STCG): If the stocks are held for less than 24 months from the date of exercise, the gain is considered short-term and is taxed according to the individual’s income tax slab rates which is applicable.
• Long-term Capital Gains (LTCG): If the stocks are held for more than 24 months, the gain is considered long-term and is taxed at 20% with indexation benefits, which adjust the purchase price for inflation to calculate the gain.

4. Double Taxation Avoidance Agreement (DTAA):

India has a DTAA with the U.S., which means taxpayers can avoid being taxed twice on the same income. If taxes are paid in the U.S. on the income from the sale of stocks, you may be eligible for a credit for those taxes against your tax liability in India. The specifics depend on the DTAA provisions and should be reviewed carefully.

5. Tax Filing in India:

It’s important for the employee to disclose international assets and foreign income in their Indian tax return if they qualify as a resident for tax purposes in India.

If you receive the RSU of a foreign company, you must disclose it under the Foreign Asset Schedule (FAS). If you paid taxes at vesting by selling shares, those shares wouldn’t be mentioned in FAS. While selling your RSU holdings, you pay tax only on the profit made and not the entire value of the shares. This also helps in avoiding double taxation

Non-disclosure can lead to penalties and interest and further Scrutiny by the tax department

6. Documentation:

Maintaining detailed records of the dates of grant, exercise, sale, and the amounts involved is crucial for calculating taxes accurately and for compliance with both U.S. and Indian tax laws.

This overview is a simplification, and the actual tax implications can vary greatly based on individual circumstances, specific types of stock options (e.g., ESOPs, RSUs), and changes in tax laws.

We will recommend to Consult with a tax professional who has expertise in cross-border taxation to navigate these complexities.

Income Tax Department Uncovers HRA Fraud Through Unauthorized PAN Usage Identifies 10,000 Instances Exceeding Rs 10 Lakh Each; Employees to Face Consequences

Severe Penalties Await Those Found Guilty of Fabricating Deductions or Rebates. The news has been published in Times of India and full news is hereunder-

“The income tax department has detected a fraud involving unauthorised use of permanent account numbers (PAN) by individuals to claim house rent allowance when they were not even tenants. So far, at least 8,000-10,000 high value cases have been detected with amounts running into Rs 10 lakh or more.
The cases first came to light when authorities found alleged rent receipts of around Rs 1 crore by an individual.

When confronted, the individual whose PAN reflected the “rental income” denied any knowledge. Further probe revealed that the individual indeed did not receive the rent that was shown against his name.

The case prompted the income tax department to further investigate the matter and it turned out that there was rampant misuse of PANs by unscrupulous individuals to claim tax deduction from their employers. So much so that officials have now come across cases where employees of certain companies have used the same PAN to claim tax deduction.

Tax officials said the department is now going after those employees, who have made bogus claims to recover the tax. It is unclear if legal action is also planned against them. The case reflects another instance of PAN being misused without the holder actually knowing about it. In this case, what has complicated the matter is that currently TDS (tax deducted at source) is applicable only for monthly rent of over Rs 50,000 or annual payment in excess of Rs 6 lakh. So, a lot of employees have been misusing the benefit to avoid paying tax on rental income.
“Most of the financial transactions are linked to PAN. With use of latest technology and automated processes and data analytics, it is not very difficult for tax authorities to track fake claims. This may not only entail tax payments later but also will result in levy of penal interest, penalty and even lead to prosecution in extreme cases. Where rent is paid to the parent, the rent should be paid through cheque or by way of electronic transfer (and not through cash) to demonstrate the genuineness of the transaction and that parent too needs to report that rental income in his or her return,” said Kuldip Kumar, partner at Mainstay Tax Advisors.
Tax officials said the fault entirely lies with the employee and the employer cannot be held liable even if multiple individuals quote the same PAN for rent payment. “Employers are not expected to make a deep investigation, but the onus is also on them to have reasonable checks and balances, while obtaining the proof of rent paid to allow HRA exemption. In fact, in some of the cases, employers have their policy that where any employee is caught having submitted a fake claim for HRA or LTA etc, such employee may be terminated from employment,” said Kumar.

Souce:- Times of India

https://timesofindia.indiatimes.com/business/india-business/tax-department-detects-hra-fraud-with-illegal-usage-of-pans/articleshow/108885147.cms

Notice under Section 133(6):

Under Section 133(6) of the Income Tax Act, tax authorities have the authority to issue a notice to any person or entity to furnish information or documents relevant to a tax assessment or inquiry. This notice empowers tax officials to gather necessary information to verify the accuracy and completeness of the taxpayer’s financial records.

Section 133(6) in The Income- Tax Act, 1995–

(6) require any person, including a banking company or any officer thereof, to furnish information in relation to such points or matters, or to furnish statements of accounts and affairs verified in the manner specified by the Assessing Officer, the Deputy Commissioner (Appeals), the Deputy Commissioner or the Commissioner (Appeals), giving information in relation to such points or matters as, in the opinion of the Assessing Officer, the Deputy Commissioner (Appeals) the Deputy Commissioner of the Commissioner (Appeals) will be useful for, or relevant to, any inquiry or proceeding under this Act.

For failure to comply with notice u/s 133(6)

Section 133(6) notice is given to tax payer or related parties seeking certain details of transaction done during the year under consideration. Failure to comply with notice can ead penalty of Rs10,000 u/s 272A.

Key Points of Notice under Section 133(6):

1. Purpose: The notice is issued to gather specific information or documents that may be crucial for assessing the taxpayer’s tax liability or conducting an inquiry into their financial affairs.
2. Scope: It can cover a wide range of information, including financial statements, account books, bank statements, transaction records, agreements, contracts, and any other documents relevant to the tax assessment.
3. Timeline: Taxpayers are typically required to respond to the notice within a specified timeframe, usually within a few weeks from the date of receipt.

Response to Notice under Section 133(6):

1. Understanding the Requirements: Upon receiving the notice, the taxpayer should carefully review the requests outlined in the notice to understand the specific information or documents sought by the tax authorities.
2. Gathering Documents: The taxpayer should gather all the requested information or documents mentioned in the notice, ensuring that they are accurate, complete, and organized for submission.
3. Preparation of Response: It’s essential to prepare a clear and concise response addressing each request in the notice comprehensively. If any information or documents are not readily available, the taxpayer should provide a valid explanation for the delay or inability to furnish them.
4. Submission to Tax Authorities: The response, along with the relevant documents, should be submitted to the designated tax authority within the stipulated timeframe mentioned in the notice. It’s advisable to maintain copies of all documents submitted for future reference.

Importance of Compliance:

• Legal Obligation: Responding to the notice under Section 133(6) is a legal obligation, and failure to comply with the notice can result in penalties, fines, or further scrutiny by tax authorities.
• Facilitating Tax Assessment: By providing the requested information or documents in a timely and accurate manner, taxpayers facilitate the tax assessment process, ensuring transparency and compliance with tax laws.

Conclusion:

A notice under Section 133(6) of the Income Tax Act empowers tax authorities to gather essential information or documents relevant to tax assessment or inquiries. Taxpayers should respond promptly and diligently to such notices, providing the requested information or documents to ensure compliance with tax laws and facilitate the tax assessment process.

Under the Income Tax Act of India, various financial transactions are subject to reporting requirements to the Income Tax Department. These transactions, which exceed specified thresholds, are reported by the respective entities to the Income Tax Department, and the details of these transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers. Here are some common transactions and their respective thresholds that are reported under the AIS:

1. Bank Transactions:

• Cash deposits or withdrawals aggregating to Rs. 10 lakh or more in a financial year in one or more savings account of a person maintained with the same bank.
• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.
• Purchase of bank drafts or pay orders with cash aggregating to Rs. 10 lakh or more in a financial year.

1. Mutual Fund Transactions:

• Redemption of units of mutual fund for an amount exceeding Rs. 10 lakh.

1. Stock Transactions:

• Sale or purchase of shares of a company listed on a recognized stock exchange exceeding Rs. 10 lakh in value per transaction.

1. Property Transactions:

• Purchase or sale of immovable property valued at Rs. 30 lakh or more.
• Receipt of rent exceeding Rs. 2.40 lakh per annum.

1. Credit Card Transactions:

• Payment made by any mode (other than cash) for credit card bills aggregating to Rs. 10 lakh or more in a financial year.

1. Foreign Exchange Transactions:

• Purchase of foreign currency or traveler’s cheque exceeding Rs. 10 lakh or more in cash.

1. Fixed Deposit Transactions:

• Fixed deposit with banks or post office aggregating to Rs. 10 lakh or more.

1. Cash Transactions:

• Cash deposits aggregating to Rs. 10 lakh or more in a financial year in one or more saving account of a person maintained with the bank.
• Cash deposits aggregating to Rs. 50 lakh or more in a financial year in one or more accounts (other than current account and time deposit) maintained with the bank.

Reporting and Compliance:

• Annual Information Statement (AIS): The details of these high-value transactions are compiled into the Annual Information Statement (AIS) for individual taxpayers and are made available for download through the Income Tax Department’s e-filing portal.
• Verification and Compliance: Taxpayers are required to verify the accuracy and completeness of the high-value transactions reported in their AIS. Any discrepancies or omissions should be rectified promptly to ensure compliance with tax laws.
• Income Tax Return Filing: Taxpayers must accurately report all high-value transactions in their income tax returns and ensure compliance with tax laws. Failure to disclose these transactions may attract penalties or scrutiny by tax authorities.

The Annual Information Return (AIR) serves as a crucial tool for the Income Tax Department to track high-value financial transactions and ensure tax compliance among taxpayers. When significant discrepancies are identified between the information reported in the AIR and the income tax returns filed by taxpayers, the Income Tax Department may issue a notice to investigate and resolve the discrepancies. Taxpayers are required to respond to such notices promptly and provide the necessary clarification or information to address the discrepancies and ensure compliance with tax laws. It’s essential for taxpayers to accurately report their financial transactions and income to avoid potential penalties or scrutiny by tax authorities