Real Estate deals by non-residents under the tax net

IT department will be focusing on non-residents' real-estate deals, especially in relation to sale of property and international transaction in the current financial year. Read more about this

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India’s Income Tax (IT) department will be tightening its grip over non-residents’ real estate deals, especially in relation to sale of property and international transactions in the current financial year. In view of this, the IT department will be focusing more on the Tax Deducted at Source (TDS), which forms an important element of total direct tax collections. In addition, the IT officials are also instructed to conduct surveys to unearth TDS defaulters.

Why are such steps being taken by the IT department?

The Central Board of Direct Taxes (CBDT), the policymaking body of the tax department, pointed out that in several cases when property is purchased from non-residents, the buyer only deducts 1 percent TDS instead of the required 20 percent, which is absolutely wrong. 

Moreover, last year the IT department found that there were hundreds of cases of ‘short’ deduction as well as delayed remittance of TDS even by smaller business organisations, and the department had to issue prosecution notices in all these cases. Thus, in its action plan for the current financial year, the CBDT aims to deal with such high-risk cases on a priority basis.

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As per the plan for FY 2018-2019, IT officials have been instructed to take the following actions:

Collate data of sale of immovable property available in annual information returns filed by property registrars
Match the data thus obtained with transactions on which TDS was deducted, to generate a list of defaulters
Take appropriate action against the defaulters 
Monitor the top 100 deductors in the last financial year, closely monitor the deductions in the current year, and report any instances of lower TDS
Each IT officer in charge of TDS to carry out at least ten surveys or spot verifications during the year
Also called on-spot verification, this survey is a process by which the IT department team pays a surprise visit to the office of an organisation that is suspected of TDS default. This team then carefully studies the account books and financial statements and takes the necessary action.

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Surveys are important because they are effective tools in detecting non-compliance of TDS. As per the CBDT action plan, cases that will be covered for TDS surveys will include:

All cases where newspaper reports indicate a significant tax consequence. E.g., big-ticket property deals and mergers and acquisitions that have TDS implications
Instances where information requested for, especially in case of remittances to non-residents, isn’t available or is not of any help
Cases where data filed shows that substantial business activity is carried out by liaison offices set up by foreign companies in India
Prosecution cases where TDS was collected but not deposited
Grievance petitions filed by the deductee and judicial decisions that are in favour of the IT department

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These steps taken by the CBDT have evoked mixed reactions. While some tax practitioners believe it could result in harassment of smaller taxpayers, others feel that such steps will bring more transparency into the system and everyone – including the NRIs – would be treated on a similar footing.

It’s not just non-residents’ real estate deals that are coming under the TDS scanner, the IT department is also gearing up to crack down on defaults by government and private sector entities, especially e-commerce portals, and local bodies such as panchayats.


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