ISSUES IN PURCHASE OF
RESIDENTIAL PROPERTY BY NRIS/OCI CARD HOLDERS
For the past two decades, many of the NRIs and OCI Card holders
have been buying residential properties in India. The government of India and
its agencies are also going overboard in inviting such persons to invest in the
property in India. However, there is a cache, since they do not have income in
India, the cost of the property they bought does not match with the income
disclosed as the only income normally disclosed in Indian Tax Return is the
Interest on the NRO account and other such investments. The source of the funds
to purchase the property is normally funds transferred from their accounts in
the country where they are gainfully employed.
This Article discusses issues and cautionary points to be taken
care of by such investors.
Notices which can be issued by the Income Tax Office on investments
made from NRE accounts to buy property:
Section 143(3)/142 where the assessee has filed the return of
income and notice is issued before the end of the Assessment year in which the
return was filed.
Section 148/148A after the end of the assessment year, whether the
assessee has filed the return of income has reason to believe that the income
of the assessee has escaped assessment. This sort of notice in these cases is
issued because the income tax return filed by these Non-resident assesseee
normally has only the interest income from the NRO account which does not match
with investment in the house property.
WHAT ARE THE SECTIONS 148/148A
These sections cover the opening of the assessment of previous
years whether the assessee has filed the return of income tax for those years
or not. They normally start with asking the assessee to file a return of
income, even if he has filed it earlier and then challenging the income
declared with the volume of investment made. A very normal letter of inquiry,
in its simplest form, may look like this:
“You have disclosed an income of Rs.26,000 in your return of income
whereas you have made an investment of Rs.15,000,000 in property as per the
information available with the Income Tax Office. Show cause why the amount of
Rs.15,000,000 should not be treated as an undisclosed income of yours in the
Assessment year and taxed accordingly.”
OR
“Explain the source of each inward remittance with documentary
evidence. If inward remittances are from your own offshore account, provide
copy of the same. And if funds have been received from some other persons,
provide details of such transaction with cop of agreement through which such
funds have been received.”
CAUTIONARY POINTS TO BE TAKEN CARE BY THE NRI/OCI
1. When you apply for the Permanent
Account Number (PAN) with the Income Tax department, normally you might engage
a professional or take help from a relative or friend. Take Care of the
following:
a. Your application must
mention that you are “Non-resident”;
b. Your citizenship must be correctly
mentioned;
c. The PAN form asks for the sources
of income, there you should mention “Income from other sources.”
d. Once PAN is allotted, update your
profile by updating your bank details, and ensuring that the nature of account
should be mentioned as applicable. For example, “NRO” and “NRE” accounts should
be mentioned as such and not as “Savings”.
e. Ensure that email mentioned is
yours and not of professional so that you can keep tab on all mails received by
you. Must keep checking Spam time to time also.
f. If you are mentioning an
Indian phone number, ensure that the number continues to be in service. At
times, such a number is the number used by a relative or friend who stays in
India. Keep in touch with him/her and ask about messages from the tax
department.
2. When you file the income tax
return, take care of the following:
a. Even if the return is being filed
by a professional, ask them to supply a copy of form 26AS, AIS and TIS to you
for your records. These are the data collected about you by the Big data of Tax
department.
b. Ensure that all your income as per
these forms are disclosed in the ITR.
c. Check that you are mentioned as
“non-resident” in the residential status.
d. Do not file ITR 1 in any case. If
you do not have any income from business and profession, then do file ITR2
only.
e. Mention all your bank accounts
with correct nature of the account.
3. If you have purchased a property:
a. There is no mention in the Return
if Income of any purchase of property, so it goes like that.
b. That you need to be prepared with
all documents to be kept in safe custody, physical as also PDF soft copies
relating such purchases. To itemize a few:
i. The purchase deeds
ii. The receipts obtained from the builder/seller
iii. In the case of a loan obtained, then the full
document of the loan including the loan agreement, repayment schedule, bank
account details for the period lapsed, and any other document which you might
have in possession with respect to the loan.
iv. You might have deposited the TDS at the time of
purchase, keep that challan and copy of form 26QB generated from the system.
v. Keep a detailed copy of all payments made by you in
respect of the property mentioning the sources from where the funds were
sourced.
vi. Keep a legible copy of the bank accounts with you.
Take care to copy all bank accounts, NRO/NRE from where you might have paid to
the seller, any other account in India which you might be maintaining, and
foreign bank statements from where the transfers were made to the NRO/NRE
account.
vii. Keep a legible copy of the bank accounts from
which the transfers to Indian NRE accounts were made and keep notes for such
transfers. If there are deposits to the bank accounts just before the remittances,
then it is better to keep notes about the nature of the receipts in those
accounts, like “salary”; “Encashment of Deposits”, & C.
viii. Copy of your return of taxes filed in the foreign
country should also be preserved safely, as it can show that your income in a
foreign country is sufficient to accumulate the funds which you have invested
in India.
ix. Take care that your remittances to India should not
be immediately preceded by cash deposits in your foreign accounts as in that
case the Assessing Officer may accuse you of money laundering.
4. Tools employed by the Assessing
Officers
a. Section 69-Unexplained investment;
69A-Unexplained money; 69B-Amount of investments, etc., not fully disclosed in
books of account, 69C-Unexplained expenditure, etc. are the normal tools
resorted to by the officers and they are quick to quick to conclude that the
Assessee do not possess sufficient proof of the investment.
b. At times, they sit on the judgment
on loans procured by the Assessee in the adopted county and therefore, you need
to be cautious enough if you are taking a loan in a foreign country and then
transferring that amount to your NRE account for the purpose of investment in
the property.
c. Also take care that you should
always transfer funds from your own foreign accounts to your NRE/NRO accounts
and not get a direct remittance from any other foreigner to your NRE/NRO
account.
d. If there has been any direct
transfer to your NRE account from a third party, (even if your family member),
take copy of their bank statement at the point they have transferred the
amount, take a declaration about the nature of the transfer- gift, loan or
otherwise, and take the proof of their identification.
e. The credits in the NRE accounts
are not beyond scrutiny and therefore, you should be able to explain the source
of the credits to NRE account.
5. What you should do on receipt of
notice:
a. Reply on or before the due date.
If they have mentioned number of days, like ’15 days of the date of this
letter’, then better include the day of the sending the notice and count 14
days only. If the notice mentions another date, like ‘reply on or before 9th
February’, and not time is mentioned, then it is midnight India, else if a time
is mentioned like ‘9th February 2024 11:58’, then follow the time (IST) and
file the reply before that minute.
b. Consult a tax practitioner, or if
you are confident enough of your reply, file yourself, but do not assume that
the officer will read your reply and apply common sense over and above that,
means, things which are obvious for you may not be obvious for the reader,
therefore, submit all documents, explain all points, even at the cost of
repetitions, even a question appears to be sans logic, you have to answer it.
6. What can go against you:
a. If the Assessing officer is not
satisfied, then he may proceed to treat your investment fully or a part of it
as your undisclosed income for the year and levy tax, interest and penalty on
the same.
b. He is likely to iterate that
the credits to NRE accounts need to be explained satisfactorily and he can take
the stand that it is not explained satisfactorily.
c. If you lack in presentation of
documents, take advance precautionary measures.
7. What can go in favour of you
a. If you can produce all bank
accounts, foreign as also local of the year concerned and your bank entries are
well explained then you need not worry.
b. If you have done any such
transaction in the past (say up to 10 years), then you must look back at your
record keeping and if any record is missing, take step to collect the same.
c. Keep copies of all passports with
you even if they expired. The officer can go to the extent of verifying number
of days you spent in India and therefore will ask for all pages of your
passport that you held in the year of purchase as also in the four years prior
to the transaction.
d. Log in to your PAN in the
Income-tax portal, check your profile, update if necessary, and also keep
checking the notices issued by the office.
CA Anup Mukherjee
The author has been a practicing Chartered Accountant since 1983,
is a blogger, and terms himself a “Professional Learner”.
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