An non-resident Indian (NRI) residing in the United States of America had to go through a very challenging time when he sold a property in Pune for Rs 2 crore and followed the laid down procedure. The problem started when the buyer deducted 20% TDS on this property transaction and deposited it with the income tax department using a wrong TDS form. As a result of this, the TDS amount simply failed to show up in the NRI’s AIS. Without the TDS amount showing up in the AIS, the NRI could not claim it while filing Income Tax Return (ITR), resulting in a financial loss of Rs 18.68 lakh (20% TDS).
Moreover, the income tax department, unaware about this problem, issued a tax demand notice of Rs 46 lakh to this NRI as they deemed he sold the property and did not pay capital gains tax on it. The property buyer, however, claimed that he deposited the 20% TDS money with the income tax department and also showed a bank challan receipt for the same.
To give you a background context of this problem the property buyer deposited the 20% TDS in Form 26QB which relates to Indian residents. Since the property seller was NRI, the property buyer should have used Form 27Q to deposit the deducted 20% TDS.
This wrong selection of the form by the property buyer was the source of all problems for the NRI. As soon as this issue was identified the property buyer went to the bank to correct the TDS form. However, the bank was working on this issue and taking its time to process the correction request. But the matter did not end here.
The Income tax department said they cannot fix this issue by themselves as they need to follow the rules and procedure which involves the property buyer giving consent, an indemnity bond and other documents. There were dual challenges for this NRI – on one hand he was facing a tax demand of Rs 46 lakh and on the other hand he could not claim the TDS credit of Rs 18 lakh (20% TDS) as this was not showing up in his AIS.
Hence the NRI approached the legal authority and ultimately Delhi High Court for relief.
The Delhi High Court on May 27, 2025 ordered the income tax department to make the full 20% TDS credit reflect under the NRI’s PAN with effect from the date it was deposited by the property buyer. The court also directed the income tax department to compute the amount of the tax refund that may be due to the NRI in accordance with law.
Read below to understand the facts of this case and why the Delhi High Court ordered the income tax department to fix this issue and compute the tax refund amount that may be due to this NRI.
How did this case start?
According to the order of the Delhi High Court dated May 27, 2025, here is a timeline of events:
- 1998: A NRI person residing in the United States of America (USA) purchased a property in Pune.
- March 18, 2015: A doctor expressed his interest in buying this Pune property from this NRI for a total sale consideration of Rs 2 crore. The NRI accepted the offer.
- September 5, 2015: The property buyer informed the NRI that he needs to deduct 20% TDS on this Rs 2 crore property sale. So the buyer will deduct Rs 18.68 lakh (18,68,177) and give the NRI Rs 1.8 crore (1,81,31,823). The NRI agreed to this.
- October 27, 2015: The NRI computed his income tax liability as Rs 1.9 lakh (1,91,780) and deposited the same as advance tax. He then repatriated the balance amount of property sale proceeds to the USA. He did not file an income tax return (ITR) for that year.
- March 4, 2023: An Income tax officer issued a notice under Section 148(b) to this NRI on the basis of the information available that the NRI had sold a property, which according to the officer, suggested that the petitioner’s income had escaped assessment.
- April 15, 2023: The NRI person furnished all details and even showed his advance tax receipt, but the tax officer did not accept the same. This officer then proceeded to pass an order under Section 148A(d) holding that it is a fit case for issuance of notice under Section 148.
- October 30, 2024: The income tax officer issued another notice under Section 142 seeking furnishing of certain documents. The NRI person responded to the same and gave the details.
- March 4, 2025: The income tax officer issued a proposed assessment order by accepting the ITR filed by the NRI in response to the earlier notice. The tax officer also issued a computation sheet reflecting a tax demand of Rs 46 lakh (46, 81, 013). He issued another notice showing this tax demand amount. The tax officer based on this notice also initiated penalty proceedings under Section 270A.
- March 2025: The NRI filed a detailed reply pointing out that the entire tax liability had been discharged, but the credit of the same was not effected on account of TDS returns filed under Form 26QB instead of Form 27Q.
The NRI directly filed an appeal against this order in the Delhi High Court.
What did the Income Tax Department say in the Delhi High Court?
Lawyers representing the Income Tax Department said in the Delhi High Court:
“The counsel appearing for the Revenue submits that the Income Tax Department has been unable to correct the error, as under the Standard Operating Procedure [SOP], the consent of the buyers is required, along with an indemnity bond and other documents,” the reply given to the high court.
Delhi High Court asks the tax department why buyers’ consent is required for correcting TDS form?
When the Delhi High Court asked the tax department why they need buyers’ consent for correcting the TDS return form. The lawyers representing the income tax department said:
The reply: “On a pointed query, as to why the buyers’ consent would be required, the counsel for the Revenue submits that the same would be necessary in order to obviate any action on the part of the buyers to recover the amount of the TDS that had been deposited. She states that although, there is no dispute as to the deposit of the TDS, but the petitioner’s (NRI) case has been withheld only on account of the documents required from the buyers.”
Delhi High Court final judgement
The Delhi High Court ordered the income tax department to give the full TDS credit of Rs 18 lakh to this NRI and also compute the tax refund amount due to him.
The judgement: “In the peculiar facts of this case, we consider it apposite to direct the Revenue to correct the record and reflect the TDS deposited by the buyers to the petitioner’s credit under the return filed in the Form 26QB with effect from the date, the amount was deposited. The Revenue shall further compute the amount of the refund, if any, that may be due to the petitioner in accordance with law. All the orders and communication not in conformity with the aforesaid directions shall be treated as having been set aside. The petition is allowed in the aforesaid terms. The pending application is also disposed of.”
To reiterate, the NRI computed the balance of income tax liability at Rs 1.9 lakh (1,91,780) for this Rs 2 crore property sale and deposited the same as advance tax. His AIS was showing this advance tax payment. The Income tax department did not dispute this aspect.
Source #ET
