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CASE STUDY ·
NRI TAXATION · SECTION 147 How a single tax rule saved an NRI from paying tax on
income that was never his Three co-heirs. One missing
PAN. A TDS credit stuck in the wrong name. And a clean NIL-addition
assessment order — seven years after the sale. |
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SECTION 147 / 148 |
ADDITION NIL |
ORDER DATE Feb 2024 |
THE SETUP
An inherited
property. Three heirs. One sale.
In
April 2017, a residential property in Periyar Nagar, Chennai — inherited from a
father who passed away in 1998 — was jointly sold by three legal heirs for ₹2,70,00,000. The
heirs were a mother, her daughter, and her son.
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D Daughter Co-heir · India resident Filed in 2017 |
M Mother Co-heir · No PAN at sale No PAN then |
S Son
(our client) NRI · Singapore since 2000 Reassessment notice |
The daughter handled
her compliance immediately — filed her return, declared her share of capital
gains, paid taxes, and closed her chapter cleanly. The son, an NRI with
limited familiarity with Indian tax portals, did not file. Notices went to an
old email he rarely checked.
Seven
years later, a Section 148 notice landed. The case was ours to handle.
THE COMPLICATION
The mother had
no PAN — so her TDS ended up in the son’s name
Buyers
of immovable property must deduct TDS under Section 194-IA and quote each
seller’s PAN in Form 26QB. The mother had no PAN at the time of the
transaction.
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THE PROBLEM The buyers,
unable to quote the mother’s PAN, deducted and credited TDS on her share of
the sale consideration against the son’s PAN. From the department’s records,
the son appeared to have received significantly more income than he actually
had. And the mother had no TDS credit in her name at all. |
The
path of least resistance would have been to absorb the mismatch — include the
mother’s income in the son’s computation, pay the excess tax, and close the
file. That would have been wrong, expensive, and entirely avoidable.
THE INTERVENTION
Rule 37BA —
the provision most practitioners overlook
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Rule 37BA · Income Tax Rules, 1962 TDS credit can follow income — not just the deductee’s
PAN Where
income is assessable in the hands of a person other than the deductee, the
TDS credit can be transferred to and claimed by the person in whose hands the
income is actually taxable — provided a declaration is made to the deductor
and properly reported. |
By
the time we took up the case, the mother had obtained her PAN. That opened the
door.
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1 |
Mapped
every rupee of TDS to its true income Identified
precisely which TDS credit in the son’s Form 26AS corresponded to the
mother’s share of consideration — not the son’s. |
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2 |
Invoked
Rule 37BA to transfer the credit to the mother’s PAN The mother’s
TDS was formally redirected to her own PAN through the prescribed mechanism,
and claimed in her return against her share of capital gains. |
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3 |
Filed
the son’s ITR-2 on only what was genuinely his The son’s
return disclosed only his one-third share of the capital gains. No excess
income. No inflated tax. No TDS mismatch. |
THE NUMBERS
What the son’s
return actually looked like
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Long-term capital gain (son’s share) ₹52,91,058 @20% with
indexation |
Income from house property ₹6,24,771 4 let-out
properties |
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Gross tax liability ₹12,44,642 incl.
surcharge & cess |
Interest u/s 234A/B/C ₹15,70,627 the true
cost of delay |
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WHAT THE TDS TRANSFER SAVED Had the
mother’s share been wrongly taxed in the son’s hands — at his marginal rate,
with surcharge, on ₹90 lakhs of additional income — the excess tax would have
run into several lakhs. The Rule 37BA move eliminated that entirely. Every
rupee of tax paid by the son corresponded to income actually received by him. |
THE OUTCOME
Assessment
completed. NIL addition.
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Clean closure — February 2024 Order u/s
147 ·
Returned income accepted as filed
· Addition: NIL · A
seven-year-old transaction, reassessed and closed without a single rupee of
demand. |
The
Assessing Officer examined the Sale Deed, Legal Heirship Certificate, bank
statements, and complete TDS credit allocation — and accepted the return as
filed.
LESSONS
What every NRI
with Indian property needs to know
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01 |
The
TDS trail never disappears. Form 26QB
links your PAN to a property transaction permanently. No return filed means a
notice, sooner or later. |
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02 |
Missing
PANs in joint sales create TDS mismatches. If a co-owner
lacks a PAN, their TDS will land on whoever’s PAN is available. Fix it
proactively — or risk paying someone else’s tax. |
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03 |
Rule
37BA exists for exactly this. TDS credit
can follow the income — not just the name on the deduction. Most
practitioners don’t invoke it. They should. |
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04 |
Interest
often exceeds the underlying tax. In this case,
Section 234 interest of ₹15.7 lakhs exceeded the tax itself. Filing on time
is always the cheapest option. |
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05 |
Inherited
property is taxable — but indexation helps enormously. The holding
period runs from the original owner’s acquisition date. Cost of acquisition
is indexed from that year. Know your numbers before you sell. |
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Nirupam & Associates — Chartered Accountants,
Bengaluru Specializing in NRI taxation, capital gains planning, Section
147/148 reassessments, and income tax litigation. If you have sold or are
planning to sell Indian property as an NRI, we can help you navigate the
compliance correctly — from the first filing to the final order. veeresh@cavac.in 9035865365 |
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