This story is from July 24, 2018

Non-residents’ real estate deals under TDS lens

Income tax (I-T) officials will intensify their focus on tax deducted at source (TDS) in the coming months, especially in relation to sale of property by non-residents and other international transactions.
Non-residents’ real estate deals under TDS lens
Representative image
Key Highlights
  • I-T officials will intensify their focus on TDS in the coming months, especially in relation to sale of property by non-residents and other international transactions
  • CBDT has pointed out when real estate is purchased from non-residents, the buyer of the property only deducts 1% TDS instead of the required 20%
MUMBAI: Income tax (I-T) officials will intensify their focus on tax deducted at source (TDS) in the coming months, especially in relation to sale of property by non-residents and other international transactions.
Surveys will also be carried out for detecting non-compliance with obligations regarding withholding tax — a move that has come in for criticism from some tax practitioners as it could result in harassment, even for smaller tax payers.
Last fiscal year, the I-T department had issued hundreds of prosecution notices, which also covered cases for short deduction or delayed remittance of TDS even by smaller business entities.
In its action plan for the current year ending March 31, 2019, the Central Board of Direct Taxes (CBDT), which is India’s apex direct tax policy formulation and administration body, points out that in several cases when real estate is purchased from non-residents, the buyer of the property only deducts 1 per cent TDS instead of the required 20 per cent. These are ‘high risk’ cases and must be dealt with on a priority basis, it adds.
Non-residents’ real estate deals under TDS lens

Further, I-T officials have been asked to collate data of sale of immovable property — available in annual information returns (AIRs) filed by property registrars — and match it with transactions on which TDS has been deducted to generate a list of defaulters. Action should then be appropriately taken, adds the CBDT plan for fiscal 2019.
As TDS is a major component of tax collections in respect of remittances to non-residents, CBDT’s action plan calls for applying more focused and effective risk parameters in selecting high-risk data for verification, which should then be processed and acted upon on a real-time basis. TDS constitutes an important element of total
direct tax collections. To illustrate: For the financial year 2016-17 (provisional figures), TDS at Rs 3.60 lakh crore constituted 42% of the total direct tax collection (see graphic).
I-T officials have also been asked to identify TDS statements filed by the top 100 deductors in the previous financial year, closely monitor the deductions in the current year and verify any instances of lower TDS.
“Surveys are the most effective tool for detection of non-compliance with withholding tax requirements. Even in regular assessment work, ascertaining detailed facts has now become the key to making strong assessments in international tax cases. Each I-T officer in charge of TDS is accordingly required to carry out at least 10 surveys or spot verifications during the year. Other I-T officers are expected to conduct at least two surveys each during the year,” cites the action plan report.
Cases where newspaper reports indicate a significant tax consequence will be picked up for such surveys. “Big-ticket property deals and M&A transactions are some instances that are highlighted in newspaper reports, all of which have TDS implications,” explains an I-T official.
Other indices that will help determine whether a case should be covered by a TDS survey are instances where information requested for, especially in case of remittances to non-residents, is not forthcoming; 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 has been collected but not deposited; grievance petitions filed by the deductee (from whose income the TDS has been deducted) and judicial decisions that are in favour of the I-T department.
While some tax practitioners are apprehensive of the survey targets that have been laid down, I-T officials TOI spoke to clarify that only big-ticket cases will be covered by surveys.
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About the Author
Lubna Kably

Lubna Kably is a senior editor, who focuses on various policies and legislation. In particular, she writes extensively on immigration and tax policies. The Indian diaspora is the largest in the world; through her articles she demystifies the immigration-policy related developments in select countries for outbound students, job aspirants and employees. She also analyses the impact of Income-tax and GST related developments for individuals and business entities.

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