Court drops penalty over non-filing of ITR; directs correction of TDS records wrongly filed under resident category
In a significant relief for Non-Resident Indians (NRIs dealing with real estate in India), the Delhi High Court has ruled in favour of a US-based NRI in a property-related income tax dispute. The petitioner had sold a residential property in Maharashtra in 2015 and faced penalty proceedings for not filing an Income Tax Return (ITR), despite having paid applicable taxes and complying with TDS rules, reported financialexpress.com.
The NRI had purchased the property in 1998 and sold it for ₹2 crore in 2015. The buyer deducted 20% as Tax Deducted at Source (TDS)—a total of ₹18.68 lakh—and deposited it with the government. However, the return was filed under Form 26QB, which is applicable to resident Indian sellers, not NRIs. Due to this technical error, the seller’s TDS credit did not reflect, triggering notices from the Income Tax Department.
Delhi High Court sides with NRI seller in tax dispute over property sale; penalty proceedings dropped as tax liability was fulfilled and error lay in buyer’s incorrect TDS form
The NRI had also paid ₹1.91 lakh as advance tax and repatriated the proceeds to the US, unaware of the requirement to file an ITR. The Assessing Officer (AO) issued a notice under Section 148A(b), stating income had escaped assessment. Despite submitting all documentation to prove full tax compliance, the AO proceeded under Section 148A(d) to reopen the case and initiated penalty proceedings under Section 270A.
The buyer’s use of Form 26QB, intended for resident Indian transactions, instead of Form 27Q (required for NRI transactions), led to the denial of TDS credit. Moreover, Form 16A—proof of TDS deposit—was also not submitted, compounding the issue.
Highlighting that Section 270A only came into effect from April 1, 2017, the High Court ruled that the penalty could not apply retrospectively to this FY 2015–16 case. “The penalty proceedings under Section 270A are hereby dropped,” the court stated in its March 12, 2025 order.
Additionally, the court directed the Income Tax Department to update its records to reflect the TDS credited correctly in the petitioner’s account and to process any refund due accordingly.
Experts say the judgment highlights the importance of procedural accuracy when dealing with cross-border real estate transactions. Mistakes in TDS form selection, often made by buyers, can lead to legal complications for NRIs.
