HC helps NRI avoid massive tax: why selecting a correct ITR form is key

A Delhi HC ruling protects an NRI from a huge tax demand, highlighting the importance of correct TDS filings in property sales and offering key lessons for NRIs.

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The Delhi High Court recently ruled in favour of a US-based non-resident Indians (NRIs), who was slapped with a Rs 46,81,000 tax demand by the Income Tax Department after selling a Pune property for Rs 2 crore.

 

The dispute arose because the buyer filed the TDS under the wrong form, leading to a mismatch in the NRI’s tax records. Experts say this case serves as a critical lesson for NRIs navigating India’s complex property tax compliance rules.

 

Where did things go wrong?

 

The NRI paid advance capital gains tax of Rs 1.91 lakh and the buyer deducted 20 per cent TDS, amounting to Rs 18.68 lakh. But the buyer mistakenly filed the TDS using Form 26QB, meant for resident sellers, instead of Form 27Q, which is mandatory when purchasing property from an NRI. As a result, the tax credit did not appear in the seller’s Form 26AS or AIS, prompting the tax department to issue a massive demand notice.

 

Why TDS compliance is tricky for NRIs

“Unlike residents, NRI property transactions involve more complex TDS rules,” said Ankit Jain, partner at Ved Jain & Associates. “Buyers must obtain a TAN, use Form 27Q, deposit TDS via Form 281, and issue Form 16A. Failing any of these steps can result in serious tax mismatches,” he said.

 

He adds that NRIs should apply for a Lower TDS Certificate under Section 197 if their tax liability is expected to be lower than the standard 14.95 per cent rate.

 

What can sellers do when buyers file the wrong form?

“If the buyer mistakenly files Form 26QB instead of 27Q, they must initiate rectification through the TRACES website,” said Ritika Nayyar, partner at Singhania & Co.

 

“If that doesn’t work, the NRI seller can approach the Income Tax Department with documents such as the challan, sale agreement, and Form 26QB receipt. In unresolved cases, going to court is a valid option,” Nayyar said.

 

Punit Shah, partner at Dhruva Advisors, concurs.

 

“NRIs should collect all supporting documents, TDS challans, Form 16A, bank statements, and file their ITR promptly. These help in claiming the credit even if the TDS is not reflected in Form 26AS.”

 

Delhi HC’s ruling: A precedent for others

The experts agree the Delhi High Court ruling has far-reaching implications. “It sets a strong precedent that genuine tax compliance will not be penalised due to procedural lapses by the buyer,” said Shah. Nayyar adds, “The judgment affirms that substance overrides form; taxpayers cannot be denied credit when the tax is actually deducted and paid.”

 

Key takeaway for NRIs

 

While this ruling offers relief, experts stress prevention.

 

“Even a small oversight can trigger litigation and refund delays,” said Shah. “NRIs must take early precautions, verify forms, and consult professionals to avoid avoidable disputes.”