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. 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% TDS instead of the required 20%. These are ‘high risk’ cases and must be dealt with on a priority basis, it adds. 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.