Tax Column

I am a resident individual and have forgotten to link my PAN with Aadhaar. What are the consequences of this default? Can it be rectified? 

It is mandatory for all Indian taxpayers except certain exempted categories to link their PAN with Aadhaar, the last date for which was set as June 30, 2023. If not done, the PAN will have become inoperative from July 1, 2023. The consequences of not linking the PAN with Aadhaar are serious given that you will not be able to file your Income Tax Return (ITR) nor will you be entitled for any refund if it is due to you from the IT Department. In fact, your pending returns will not be processed at all. Further, TCS or TDS will be applicable at a very high rate. For example, if you are earning interest from bank deposits, the withholding tax would be 20 per cent instead of 10 per cent. [EasyDNNnews:PaidContentStart]

Further, TCS or TDS credit will not appear in Form 26 AS. In the absence of the PAN, you cannot open a bank account nor can you apply for a new debit or credit card. Moreover, if you propose to buy immovable property, the same will not be registered in the absence of a PAN card. Further, if you are selling property, the buyer will deduct TDS at 20 per cent instead of 1 per cent. These and more are the consequences of not linking your PAN with Aadhaar. Since you cannot continue  without a valid PAN card, my suggestion is to make it operative again through the right channels by paying a fee of ₹1,000. 

I am a British citizen married to an Indian resident. For the current financial year from November 2023, I have started living in India. I have earned foreign income in the UK. Could you please let me know what would be my status for tax purposes in India for the current financial year as well as subsequent financial years and the taxability of my foreign income in India? 

To have residential status in India, you have to satisfy two conditions: one, you need to be physically present for 182 days or more in a financial year and the other condition is that you must have remained in India over the past four years preceding that year for a period amounting to 365 days or more. In your case, for the current financial year i.e. 2023-24, your stay in India would be less than 182 days. Therefore, for the current financial year your status will be a non-resident. Your foreign income will not be taxed in India for the current financial year. 

If in the next financial year i.e. in 2024-25, you don’t remain in India for 182 days or more, then again you will be a non-resident in the next financial year also. But if you remain in India for the next financial year for more than 182 days, then your status will be resident but not ordinary resident (RNOR) as you have been a non-resident in nine out of ten earlier years. In that case, your foreign income will not be taxed in India. Your status in financial year 2025-26 could also be RNOR. However, during all these years, if you earn any income in India, the same would be liable to taxation and you must obtain a PAN. 

My son is a non-resident and owns a residential flat in Mumbai. He is planning to sell his flat for a total consideration of ₹20 crore. His net capital gain would be ₹10 crore after indexation. However, the buyer insists withholding tax on the gross amount of ₹20 crore. Is the buyer action  correct and what is the remedy to overcome this? 

The buyer’s action seems to be correct in view of the provision of Section 195 of the Income Tax Act. Although what is chargeable to tax is the net capital gain i.e. sale price minus indexed cost, in the case of a non-resident, there is a withholding tax and therefore the buyer may not be aware of what would be your indexed cost. To overcome this, you can approach the Income Tax Department with an application for lower rate of deduction of withholding tax. You can file Form 13 online by giving calculations of net capital gain supported by the documents. If satisfied, the department may issue a certificate of lower deduction of tax at source. In your case, the net capital gain is ₹10 crore. The department may direct the buyer to deduct tax at 10 per cent instead of 20 per cent. The entire procedure may take around two weeks but it is better to follow the procedure to avoid unnecessary litigation at a later stage. 

I am an individual. My son, who is pursuing a degree course, is likely to receive a donation or gift to enable him to meet the expenses of education. He is also likely to receive donation from a charitable trust. Would these amounts be taxable in his hands or are there any relief measures available for the purpose of education? 

I assume that your son is more than 18 years old. Therefore, tax implications, if any, will apply. Under Section 56(2)(x) of the Income Tax Act, if any person receives any sum of money in excess of ₹50,000, the entire amount is taxable as income from other sources. There is no specific exemption in respect of donation, charity or assistance for education purpose. However, if he receives donation or financial assistance from a relative as defined in the Income Tax Act, then such an amount will benefit from exemption. Further, any amount recei--ved from a charitable trust which is registered under Section 12A of the Income Tax Act is not taxable in view of specific exemption given under Section 56(2)(x) of the Income Tax Act.

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