Non-Resident Indians to be cautious while submitting the evidences to the Assessing Officer during Tax Scrutiny.

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Unexplained investments of Non-Resident Indians

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Section 69. Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year.

ITAT Delhi in the case of Finlay Corporation Ltd. [2003] 86 ITD 626 (Delhi)

Therefore, the issue whether the income of a non-resident is taxable or not is still to be decided with reference to the provisions of section 5(2) and the provisions of section 68 or 69 cannot enlarge the scope of section 5(2). What is not taxable under section 5(2) cannot be taxed under the provisions of section 68 or 69. Undersection 5(2), the income accruing or arising outside India is not taxable unless it is received in India. Similarly, if any income is already received outside India, the same cannot be taxed in India merely on the ground that it is brought in India by way of remittances. If such income is shown in the books of account then it cannot be taxed in India merely because the assessee is unable to prove the source of such entry. Therefore, the same cannot be taxed under section 68 merely on the ground that the assessee fails to prove the genuineness and source of such cash credit. Therefore, the provisions of section 68 or 69 would be applicable in the case of non-resident only with reference to those amounts whose origin of source can be located in India. Therefore, the provisions of section 68 or 69 have limited application in the case of anon-resident

Capital Receipt and not Revenue Receipt of NRI

It therefore naturally follows that if the identity of the non-resident remitter is established and the money has come in through banking channels, it would constitute a capital receipt and ordinarily cannot be treated as deemed income under s. 68 or 69 of the Act. This is clarified by the CBDT circular itself.

Remittances are made by the nonresident holding company

The Tribunal in the cases of Finlay CorporationLtd., Smt. Susila Ramasamy and Saraswati Holding Corpn. Inc. and the import of CBDT circular referred to above. Whenever remittances are made by the nonresident holding company for purchase of shares of its subsidiary in India, the money undoubtedly is capital in the nature and if documents like FIRC etc. are produced, it can safely be stated that the said money came in through banking channels.

In the case of Anil Dhansukhlal v. Income Tax Officer [2025] 170 Taxmann.com 821 the assessee who being a non- resident acquired a property in India in his name with wife as a second name. Nearly all the investments being funded by his wife from her declared sources held in her foreign bank account. Moreover, all the payments have been made by her in the years preceding the relevant assessment in which only a small sum of Rs. 2 odd lacs is paid by her. The assessee husband had no incomes in India he therefore did not file any return in India.

As the sale agreement got registered in the relevant assessment year the assessing officer proposed an addition for the amount of Rs.2,97,63,459/-, being the Fair Market Value of the property purchased by the assessee as unexplained investment. That followed the actual queries and the assessment routine. The Assessing Officer issued notice to first holder of the property being the assessee who filed a return at a total income of Rs.480/- only. Not finding payments being routed through his bank the Assessing Officer made entire addition at Rs.2,97,63,459/- completely ignoring wife’s banks.

The Dispute Resolution Panel also confirmed the addition of Assessing Officer by passing an adverse order.

The Rajkot bench of ITAT taking note of all evidence filed in respect of wife’s banks and sources deleted the addition stating that it was a joint property held with wife so it was desirable to take into account investments made as properly explained by the Assessee from wife’s banks.

CA.Jayshree B.Com., ACA

CA.K.Balamurugan B.Sc, LLB., FCA

Potential Amendments Benefiting NRI Taxpayers

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Potential Amendments Benefiting NRI Taxpayers

Potential Amendments Benefiting NRI Taxpayers

Several areas could be reformed to provide greater convenience and efficiency for Non-Resident Indian (NRI) taxpayers. Below are some key expectations:

  1. TDS on Purchase of Immovable Properties:
    When purchasing immovable property (except agricultural land) from Indian residents, buyers must deduct 1% TDS on the property value and complete the process through Form 26QB. This process is relatively straightforward. However, when the seller is a non-resident, the applicable TDS rate is significantly higher, and buyers must also obtain a TAN (Tax Deduction and Collection Account Number) and file e-TDS returns, adding to the complexity. This creates administrative difficulties for both buyers and sellers. Introducing a simpler process for non-resident sellers, similar to that available for resident sellers, could ease compliance and ensure smoother transactions.
  2. E-filing of Tax Returns:
    The introduction of electronic filing has enhanced the tax return submission process. However, the final step—e-verification—continues to be a hurdle for NRIs. Currently, verification requires either an Aadhaar-based OTP linked to an Indian mobile number or a digital signature certificate (DSC). In cases where these options are unavailable, NRIs must physically submit the ITR-V. Allowing verification through email, overseas mobile numbers, or foreign bank accounts could streamline the process. Additionally, extending the 30-day verification deadline for non-residents would reduce administrative burdens, eliminating the need to track ITR-V submissions or request condonation for delays.
  3. Tax Residency Certificate (TRC) at the Time of Filing Returns:
    NRIs are required to submit a Tax Residency Certificate (TRC) to claim tax treaty benefits and file Form 10F while submitting their returns. However, mismatches between calendar and financial years often make it difficult for NRIs to obtain a TRC at the time of filing, as foreign tax authorities do not issue residency certificates for future periods. Additionally, in some cases, the cost of acquiring a TRC may exceed the refund amount claimed. A more flexible approach, such as permitting the TRC to be submitted upon request by tax authorities, would simplify compliance and facilitate smoother tax refund claims.
  4. Tax Payments and Refunds to Overseas Bank Accounts:
    The current system permits tax payments via net banking, debit cards, NEFT/RTGS, and UPI, but these options are limited to Indian bank accounts. Additionally, NRIs who close their Indian bank accounts after leaving the country may still become eligible for refunds, which can only be credited to a pre-validated Indian bank account. Many NRIs convert their Indian accounts into Non-Resident Ordinary (NRO) accounts, which impose deposit restrictions. Moreover, they must inform banks about expected refunds, a process that is often time-consuming and may delay or prevent the timely receipt of refunds. Allowing direct tax payments and refunds to overseas bank accounts would significantly improve efficiency for NRIs.

Conclusion:

Implementing these reforms would significantly enhance the tax compliance experience for NRIs by reducing procedural difficulties, minimizing delays, and improving efficiency. These changes would not only simplify tax filing but also ensure a more seamless and equitable tax system for non-residents.