Category: Legal

TDS on NRI Property Purchase: How Form 26A Can Protect Buyers from Section 201 Defaults

When purchasing property from a Non-Resident Indian (NRI), tax compliance around Tax Deducted at Source (TDS) becomes a critical issue for buyers. Failure to correctly deduct and deposit TDS under Section 195 of the Income Tax Act can result in the buyer being held liable for tax defaults under Section 201(1). However, a recent ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai has provided significant relief to buyers, emphasizing the protective role of Form 26A. This blog explores the complexities around TDS on NRI property purchases, the importance of Form 26A, and practical steps buyers can take to avoid penalties.

Understanding TDS on Property Purchases from NRIs

TDS obligations differ substantially when purchasing property from an NRI compared to resident sellers. Under Section 195 of the Income Tax Act, the buyer (known as the deductor) must withhold tax on the amount paid to the NRI seller (the deductee) before transferring the sale proceeds.

• The prescribed TDS rate on purchase from NRIs typically includes 20% long-term capital gains tax plus applicable surcharge and cess, or 30% for short-term capital gains.
• Buyers are required to obtain and use a TAN (Tax Deduction Account Number) for deducting and depositing TDS.
• They must file TDS returns quarterly and issue TDS certificates to sellers as proof of deduction.
• Failure to deduct or deposit TDS can lead to personal liability of the buyer for the unpaid tax under Section 201 of the Income Tax Act.

This regulatory framework aims to ensure taxes due on capital gains by NRIs are collected at source, but it can create practical challenges and risks for buyers, especially if compliance details are missed or delayed.

The Crucial Role of Form 26A in Shielding Buyers

Form 26A serves as a certification from the deductee (NRI seller) confirming that the specified tax on the transaction has been duly paid. Recent legal developments have emphasized the importance of this document in protecting buyers from tax default responsibilities.

The ITAT Mumbai ruling clarified:

• Relief under the first proviso of Section 201(1) is available to buyers if they can furnish Form 26A certifying payment of the tax by the deductee.
• Even if the buyer initially faces a demand notice for default in TDS payment, providing Form 26A verifies that the seller has ultimately paid the tax, thus shielding the buyer.
• In a particular case, although the certificate was received post-appeal, the matter was remanded for verification, indicating the tribunal’s willingness to protect buyers upon due proof.

This ruling is important because it shifts some burden away from buyers, who otherwise risk being penalized for non-payment despite deducting tax in good faith, or when deductee has settled the tax liability independently.

Practical Compliance Tips for Buyers Purchasing Property from NRIs

To ensure smooth transactions and avoid being penalized under Section 201, buyers should adopt rigorous documentation and procedural controls:

• Deduct and Deposit TDS Promptly: Deduct TDS at the prescribed rate from the sale consideration and deposit it timely using the TAN.
• File Quarterly TDS Returns: Submit Form 27Q for non-resident TDS returns quarterly and adhere to deadlines for TDS certificate issuance (Form 16A).
• Obtain Form 26A from the Seller: The buyer should request the deductee to furnish Form 26A, certifying tax payment, which can be presented if tax default notices arise.
• Maintain Records to Show Compliance: Keep copies of payment challans, TDS certificates, and correspondence with sellers regarding tax payment status.
• Seek Professional Assistance: Engage tax experts to handle complex cross-border compliance, including applying for lower TDS certificates for sellers and reconciling Form 26AS tax credits.

Through meticulous adherence to compliance norms and documentation, buyers can protect themselves against adverse consequences, safeguard transactions, and avoid penalty exposure under Section 201.

Conclusion

The ITAT Mumbai ruling reinforces that presentation of Form 26A certifying the deductee’s tax payment provides crucial relief to buyers from tax default liability under Section 201 of the Income Tax Act. For buyers purchasing property from NRIs, this means diligent TDS deduction along with obtaining proper tax payment certification from sellers is essential.

In the increasingly scrutinized arena of NRI property transactions, enhanced understanding of TDS provisions and relevant documentation safeguards is key for smooth and compliant dealings.

Understanding the Key Changes in GSTR-9 Table 8A & 8B for FY 2024–25

The Central Board of Indirect Taxes and Customs (CBIC) has brought significant revisions to the annual GST return filing process for the financial year 2024–25, specifically targeting Tables 8A and 8B of GSTR-9. These changes aim to improve the accuracy of Input Tax Credit (ITC) reporting and reduce disputes caused by data mismatches in GST returns.

The Revised Framework for Table 8A

Table 8A of GSTR-9 is crucial as it auto-populates ITC data corresponding to inward supplies for a financial year. The recent Notification No. 13/2025 clarifies that for FY 2024–25, Table 8A will pull data strictly from the GSTR-2B returns related to that financial year. Notably:

• It will include all eligible invoices reflected in GSTR-2B from April 2024 to March 2025, as well as those appearing in the April to October 2025 period of GSTR-2B for FY 2024–25.
• Invoices pertaining to previous years, specifically FY 2023–24 appearing in GSTR-2B from April to October 2024, will be excluded to eliminate carry-forward mismatches.
• This approach is designed to reduce discrepancies and prevent over-claims or under-claims of ITC that typically arise from overlapping reporting periods.

This revamped data sourcing helps in aligning the ITC reported in the annual return with the actual claims filed monthly, streamlining compliance and reducing the risk of litigation for taxpayers[1][3][7].

Automatic Population and Role of Table 8B

Table 8B, which reflects the ITC reconciled with GSTR-9, will now get auto-populated from Table 6B of the GSTR-9 return for FY 2024–25 onward. Important highlights include:

• Table 8B will no longer include ITC reclaimed under Rule 37/37A and focuses solely on consistent ITC claims aligned with notified GST provisions.
• It is delinked from Table 8A, providing a clearer distinction between gross ITC available and ITC eligible after necessary reversals or adjustments.
• The auto population helps minimize manual errors and supports robust reconciliation, enhancing the credibility of GST annual filings.

By separating these tables’ functions and automating respective data flows, CBIC intends to provide taxpayers with a more transparent and error-resistant framework for ITC reporting[9][7].

Impact on Taxpayers and Compliance Recommendations

These regulatory changes require taxpayers and GST professionals to adapt their compliance processes carefully. Key compliance considerations include:

• Regular Reconciliation: Taxpayers should reconcile monthly GSTR-2B data meticulously to ensure all inward supplies and ITC figures align with the auto-populated data in Table 8A and Table 8B.
• Awareness of Reporting Windows: Understanding which invoices are included or excluded based on invoice dates and GSTR-2B appearances is critical to avoid mismatches and disputes during annual return submission.
• Utilization of Portal Tools: Leveraging the GST portal’s utilities for downloading and validating JSON data before final submission can prevent locked errors post-filing.
• Careful Handling of Rule 37/37A ITC: ITC reclaimed due to temporary reversals (Rule 37/37A) must be tracked separately and disclosed appropriately in other tables (such as Table 6H), not in Table 8B.
• Deadline Compliance: Filing the annual return well before the December 31, 2025 deadline is crucial to avoid last-minute portal glitches and penalties.

These steps will help businesses reduce GST disputes, maintain data integrity, and enhance ease of doing business under the GST regime[1][4][7][9].

Conclusion

The CBIC’s Notification 13/2025 and related FAQs have brought clarity and automation into the annual ITC reporting regime through significant updates in GSTR-9 Tables 8A and 8B for FY 2024–25. Taxpayers must align their accounting and GST return processes with these changes to ensure smooth compliance, avoid mismatches, and minimize litigation risks. Proactive reconciliation, understanding new data flows, and accurate reporting will be key to navigating the updated GST annual return framework.

TDS on NRI Property Purchase: How Form 26A Can Protect Buyers from Section 201 Defaults

When purchasing property from a Non-Resident Indian (NRI), tax compliance around Tax Deducted at Source (TDS) becomes a critical issue for buyers. Failure to correctly deduct and deposit TDS under Section 195 of the Income Tax Act can result in the buyer being held liable for tax defaults under Section 201(1). However, a recent ruling by the Income Tax Appellate Tribunal (ITAT), Mumbai has provided significant relief to buyers, emphasizing the protective role of Form 26A. This blog explores the complexities around TDS on NRI property purchases, the importance of Form 26A, and practical steps buyers can take to avoid penalties.

Understanding TDS on Property Purchases from NRIs

TDS obligations differ substantially when purchasing property from an NRI compared to resident sellers. Under Section 195 of the Income Tax Act, the buyer (known as the deductor) must withhold tax on the amount paid to the NRI seller (the deductee) before transferring the sale proceeds.

• The prescribed TDS rate on purchase from NRIs typically includes 20% long-term capital gains tax plus applicable surcharge and cess, or 30% for short-term capital gains.
• Buyers are required to obtain and use a TAN (Tax Deduction Account Number) for deducting and depositing TDS.
• They must file TDS returns quarterly and issue TDS certificates to sellers as proof of deduction.
• Failure to deduct or deposit TDS can lead to personal liability of the buyer for the unpaid tax under Section 201 of the Income Tax Act.

This regulatory framework aims to ensure taxes due on capital gains by NRIs are collected at source, but it can create practical challenges and risks for buyers, especially if compliance details are missed or delayed.

The Crucial Role of Form 26A in Shielding Buyers

Form 26A serves as a certification from the deductee (NRI seller) confirming that the specified tax on the transaction has been duly paid. Recent legal developments have emphasized the importance of this document in protecting buyers from tax default responsibilities.

The ITAT Mumbai ruling clarified:

• Relief under the first proviso of Section 201(1) is available to buyers if they can furnish Form 26A certifying payment of the tax by the deductee.
• Even if the buyer initially faces a demand notice for default in TDS payment, providing Form 26A verifies that the seller has ultimately paid the tax, thus shielding the buyer.
• In a particular case, although the certificate was received post-appeal, the matter was remanded for verification, indicating the tribunal’s willingness to protect buyers upon due proof.

This ruling is important because it shifts some burden away from buyers, who otherwise risk being penalized for non-payment despite deducting tax in good faith, or when deductee has settled the tax liability independently.

Practical Compliance Tips for Buyers Purchasing Property from NRIs

To ensure smooth transactions and avoid being penalized under Section 201, buyers should adopt rigorous documentation and procedural controls:

• Deduct and Deposit TDS Promptly: Deduct TDS at the prescribed rate from the sale consideration and deposit it timely using the TAN.
• File Quarterly TDS Returns: Submit Form 27Q for non-resident TDS returns quarterly and adhere to deadlines for TDS certificate issuance (Form 16A).
• Obtain Form 26A from the Seller: The buyer should request the deductee to furnish Form 26A, certifying tax payment, which can be presented if tax default notices arise.
• Maintain Records to Show Compliance: Keep copies of payment challans, TDS certificates, and correspondence with sellers regarding tax payment status.
• Seek Professional Assistance: Engage tax experts to handle complex cross-border compliance, including applying for lower TDS certificates for sellers and reconciling Form 26AS tax credits.

Through meticulous adherence to compliance norms and documentation, buyers can protect themselves against adverse consequences, safeguard transactions, and avoid penalty exposure under Section 201.

Conclusion

The ITAT Mumbai ruling reinforces that presentation of Form 26A certifying the deductee’s tax payment provides crucial relief to buyers from tax default liability under Section 201 of the Income Tax Act. For buyers purchasing property from NRIs, this means diligent TDS deduction along with obtaining proper tax payment certification from sellers is essential.

In the increasingly scrutinized arena of NRI property transactions, enhanced understanding of TDS provisions and relevant documentation safeguards is key for smooth and compliant dealings.

Reassessment Upheld but Additions Deleted: Key Insights from ITAT Delhi’s Recent Judgment

The Income Tax Appellate Tribunal (ITAT) Delhi recently upheld the reopening of assessment under Section 147 of the Income Tax Act but strikingly deleted all the additions made by the Assessing Officer (AO) due to lack of evidence. This ruling, which affirmed the deletion of disallowances related to commission income, travel expenses, rent, and salaries, provides important precedents for taxpayers and tax practitioners. In this blog post, we analyze the background, explain the tribunal’s reasoning, and discuss the practical implications of this significant case.

Understanding the Context: Reassessment under Section 147

Section 147 of the Income Tax Act empowers the tax authorities to reopen an assessment if there is reason to believe that income has escaped assessment. However, this power is subject to procedural safeguards and evidentiary support for any additions or disallowances made subsequently.

In the recent case before ITAT Delhi, the reopening itself was sustained, indicating that the procedural requirements for initiating reassessment were duly met. However, the core controversy revolved around whether the additions made by the AO were justified and supported by credible evidence.

ITAT’s Decision: Deletion of All Additions Due to Lack of Evidence

The CIT(A) (Commissioner of Income Tax Appeals) had deleted all the additions made by the AO, including those related to:

• Commission income
• Travel expenses
• Rental payments
• Salaries

The ITAT upheld this deletion, agreeing with the CIT(A) that the assessee had adequately supported all claims with proper documentation and records. The tribunal observed that the AO failed to produce sufficient evidence to justify any disallowance on these grounds.

This judgment reinforces the principle that mere reopening of assessment does not guarantee acceptance of revenue’s claims; the department must substantiate every addition with concrete evidence. The ITAT dismissed the Revenue’s appeal in full, thereby favouring the taxpayer in a complete manner.

Implications for Taxpayers and Practitioners

Key Takeaways from the Judgment

• Reassessment Jurisdiction: The reopening under Section 147 must satisfy procedural requirements, which the ITAT confirmed in this case.
• Evidence-Based Disallowances: Additions or disallowances must be supported by documentary evidence; mere suspicion or assertion is insufficient.
• Comprehensive Records: Maintenance and production of complete records relating to commission income, expenses, rent, and salaries can successfully defend against disallowances.

Practical Tips for Taxpayers

• Maintain meticulous documentation for all income and expenses claimed.
• Ensure that expense claims, especially travel, rent, and salaries, are substantiated with invoices, agreements, and payment proofs.
• Be proactive in responding to reassessment notices by furnishing adequate evidence to support the declared income and expense claims.
• Engage experienced tax professionals early to handle appeals and represent effective evidence before authorities.

This case underscores the balanced approach of the tax tribunal in safeguarding the interests of taxpayers while also respecting the revenue’s powers to reopen assessments. It sends a clear message that reopening is not an automatic endorsement of additions; each addition must stand the test of evidence scrutiny.

Taxpayers and professionals should closely follow such rulings to strategize reassessment defense and maintain compliance in documentation and record-keeping.

ITAT Ahmedabad Upholds Addition of Bogus LTCG from Penny Stocks: A Critical Analysis

Introduction to Bogus LTCG and Section 68

Long Term Capital Gains (LTCG) arising from the sale of shares typically enjoy certain tax exemptions under the Income Tax Act. However, the tax authorities have often scrutinized such gains when linked with penny stocks, suspecting these as conduits for bogus or fabricated LTCG claims to evade tax. Under Section 68 of the Income Tax Act, unexplained cash credits or credits representing unexplained investments can be added back to an assessee’s income if found to be bogus.

The recent decision by the Income Tax Appellate Tribunal (ITAT) Ahmedabad bench upholding an addition of ₹93.92 lakh under Section 68 for bogus LTCG from Kushal Tradelink penny stock shares brings this issue into sharp focus[7]. This blog examines the case, the rationale of the tribunal, and broader implications for investors and tax practitioners.

Understanding the ITAT Ahmedabad Decision on Bogus LTCG

The case involved an assessee who claimed long-term capital gains on shares of Kushal Tradelink, a penny stock company. The Assessing Officer (AO) suspected the LTCG to be bogus, added the amount as unexplained income under Section 68, and disallowed the claim. The assessee challenged this addition before ITAT.

The ITAT upheld the addition based on the “human probability test,” rejecting the assessee’s appeal. This test evaluates the likelihood of genuine transactions by considering the surrounding facts and circumstances. The tribunal found that:

• The transactions did not realistically demonstrate market behavior expected from genuine share transfers.
• The peculiarity of penny stock pricing and rapid unjustified gains suggested manipulation rather than real investment profits.
• The assessee failed to provide sufficient evidence to substantiate the LTCG claim.

Consequently, the tribunal ruled that the amounts credited as LTCG were unexplained and rightly added to income under Section 68[7]. This aligns with the tax department’s broader approach to curb misuse of penny stocks for bogus LTCG claims.

Contextualizing Bogus LTCG from Penny Stocks and Tax Jurisprudence

Cases involving penny stocks and bogus LTCG have proliferated due to the ease of manipulating prices in illiquid penny stock scripts. The Income Tax Department and courts have been vigilant about this issue, frequently relying on investigative reports and deposit trails revealing accommodation entries[3]. The modus operandi often involves:

• Routing unaccounted cash through penny stocks.
• Generating artificial LTCG to convert black money into apparent tax-exempt capital gains.
• Using shell companies with nominal genuine business operations.

While some cases have seen the deletions of such additions when the assessee successfully disproves collusion or the bogus nature of the gains[2], others like the Kushal Tradelink case reaffirm the tax authorities’ stance.

It is important to note that the courts have also ruled that not all penny stock investments are bogus by default. Genuine investments, supported by adequate documentation and lacking suspicious features, may not attract adverse inference or Section 68 additions[6]. However, where human probability and objective analysis denote suspicion, additions are likely to be sustained.

Implications for Taxpayers and Professionals

The ITAT ruling sends a clear message to taxpayers and their advisors dealing with penny stocks and LTCG claims:

• Due diligence and documentation are critical: Maintain detailed records to substantiate the genuineness of every transaction, especially in penny stocks.
• Risk of additions under Section 68: Unexplained LTCG claimed on penny stock sales may attract heavy scrutiny, and taxpayers need to be prepared for rigorous questioning and possible additions.
• Human probability test application: This assessment standard evaluates the realistic nature of transactions based on facts, making subjective claims or mere explanations insufficient.
• Professional prudence: Chartered Accountants and tax consultants must advise clients judiciously regarding the risks of claiming LTCG from illiquid, low-priced stocks.

In summary, the ITAT Ahmedabad decision underscores the importance of genuine market behavior and robust evidentiary support in claims involving capital gains from penny stocks. Taxpayers should be cautious about indulging in or structuring transactions that could be perceived as accommodation entries, lest they face unwelcome additions and litigation.