Last Updated:June 15, 2025, 11:16 IST
An NRI in the US faced a Rs 46 lakh tax demand after selling his Pune property due to buyer’s TDS form error. The court rules in his favour by directing the dept to correct record.
Instead of using Form 27Q, designated for NRI sellers, the buyer used Form 26QB, intended for resident sellers.
A Non-Resident Indian (NRI) residing in the US faced an unexpected ordeal after selling his Pune property for Rs 2 crore, despite adhering to all due procedures. The issue arose from a technical error by the buyer, who deposited the 20% TDS on the sale using the incorrect form. This mistake not only created a discrepancy in the NRI’s tax records but also triggered a substantial tax demand of Rs 46 lakh from the income tax department.
According to the Delhi High Court’s May 27, 2025 order, the buyer deducted Rs 18.68 lakh (20% TDS) from the sale proceeds and deposited it with the tax department. However, instead of using Form 27Q, designated for NRI sellers, the buyer used Form 26QB, intended for resident sellers. Consequently, the deducted tax did not appear in the seller’s Annual Information Statement (AIS), preventing him from claiming the TDS credit when filing his Income Tax Return (ITR).
The Rs 26 Lakh Income Tax Notice
Unaware of the buyer’s error, the NRI calculated his actual capital gains tax liability at Rs 1.91 lakh and paid this as advance tax. However, due to the missing TDS credit in his AIS and the absence of an ITR filing that year, the income tax department deemed him non-compliant. Subsequently, they issued a notice under Section 148(b) in March 2023, suggesting income had escaped assessment.
Despite the NRI furnishing proof of advance tax payment and transaction details, the department refused to acknowledge them. In March 2025, the tax officer issued an order demanding over Rs 46 lakh in taxes and initiated penalty proceedings under Section 270A.
Even with the buyer producing a valid bank challan confirming the TDS deposit, the department remained resolute, citing procedural constraints. Their Standard Operating Procedure (SOP) stipulated that correcting the TDS form required the buyer’s written consent, an indemnity bond, and other supporting documents. The bank also experienced delays in processing the buyer’s request to rectify the form.
Delhi HC Favours NRI
Left with no alternative, the NRI petitioned the Delhi High Court for relief. In court, the income tax department confirmed the tax deposit but maintained that the process could not be rectified internally without the buyer’s cooperation.
The High Court questioned the necessity of the buyer’s consent when the TDS deposit was undisputed. The department argued that it was essential to prevent any future refund claims by the buyer for the deposited TDS.
However, the court ruled in favour of the NRI, stating, “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 court further directed the income tax department to calculate any refund due to the NRI and to consider all conflicting orders and communications as superseded.
Background of the Case
1998: NRI purchases property in Pune.
March 2015: Buyer agrees to purchase the property for Rs 2 crore.
September 2015: Buyer deducts Rs 18.68 lakh TDS and pays the remaining amount to the NRI.
October 2015: NRI calculates tax liability as Rs 1.91 lakh and deposits it as advance tax. No ITR is filed.
March 2023: Income Tax Department issues notice under Section 148.
March 2025: Department raises a tax demand of Rs 46.8 lakh despite the NRI’s response and proof of advance tax.
The NRI’s AIS reflected the advance tax deposit of Rs 1.91 lakh, but not the TDS deducted by the buyer, owing to the form filing error.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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