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Details of TDS are mentioned in sale deed

If the details of TDS are mentioned in the sale deed, you may compute your tax liability and claim TDS amount in your ITR

I am a US citizen. I have sold an ancestral property in India to a person who has cut tax deducted at source (TDS) of 20%. But this person has not remitted this TDS to the income tax department in spite of several reminders. He lives in Chicago and may be an NRI himself. What should I do?

—Ashok Parekh

Sale of an immovable property (being ancestral property in your case) will be taxable in India in the year of sale of the property. Any immovable property held for more than 24 months is classified as a long-term capital asset (LTCA).

Under the Indian income-tax law, if the seller qualifies as a “non-resident" in India during the relevant financial year, the buyer is required to deduct TDS at 20% (plus applicable surcharge and health and education cess) in case of long-term capital gains (LTCG).

In your case, you may persuade the buyer to deposit TDS at the earliest possible to avoid onerous consequences of recovery of TDS, interest, penalty and prosecution against him under the Indian income-tax law.

If the details of TDS are mentioned in the sale deed, you may compute your tax liability and claim TDS amount in your income tax return (ITR). Once you file your ITR, it is likely that the TDS credit will be denied at the first instance as the buyer has not remitted TDS to the income tax department. You may receive a demand notice to the extent of TDS credit.

In such case, you may file a rectification application to allow TDS credit by relying on the following: 1) details of TDS mentioned in the sale deed; 2) any other proof or document which substantiates that TDS has been deducted by the buyer; 3) Section 205 of the Income-tax Act, 1961, which states that where tax is deductible at source, the taxpayer will not be called upon to pay the tax himself to the extent to which tax has been deducted from that income; 4) CBDT Instruction No. 275/29/2014-IT-(B), dated 1 June 2015, and Office Memorandum F.No.275/29/2014-It(B), dated 11-3-2016, wherein income tax authorities have issued an internal instruction to income tax officers to not enforce demands created on account of mismatch of TDS credit due to non-payment of TDS amount by the deductor. Judicial precedents have held that where the payer has deducted TDS but has failed to deposit it, then such TDS has to be recovered from the payer and cannot be recovered from the deductee or payee.

It is likely that the income tax officer may agree to the above provisions and allow TDS credit.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at mintmoney@livemint.com

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