For Non-Resident Indians (NRIs) managing financial affairs for aging parents back home, understanding the legal and tax landscape is crucial. A common query involves adding one's name to parents' bank accounts for operational ease. Separately, NRIs looking to sell underperforming real estate assets in India must navigate the Tax Deducted at Source (TDS) process. Chartered Accountant Harshal Bhuta clarifies these critical points.
Operating Parents' Bank Accounts as an NRI: No Direct Tax Impact
An NRI residing in the UAE posed a specific concern. He has been working abroad for years while his parents live in India. To help manage their finances online, he wishes to add his name as a second holder to their bank accounts. His primary question was whether this would create any tax liability for him on the interest income generated.
The expert clarifies a vital principle: merely becoming a joint holder does not make you the owner of the funds or taxable on the interest. Tax liability follows the 'beneficial owner.' As long as the money genuinely belongs to the parents and they remain the primary account holders, the interest income is taxable in their hands only, not the NRI child's.
This arrangement is supported by the Foreign Exchange Management Act (FEMA). For a resident account held jointly with an NRI who is a close relative, the structure is strictly for "either or survivor" operational convenience. It explicitly does not allow the NRI to claim any beneficial interest in the account balance. The NRI is permitted to operate the account solely for and on behalf of the resident parent, and only to meet the resident's domestic payment needs.
A Crucial Reporting Caveat for NRIs
Despite the clear tax position, a procedural warning is issued. Banks may sometimes automatically report the interest income from a joint account against the Permanent Account Numbers (PAN) of both holders. This can lead to overlapping disclosures in the Annual Information Statement (AIS) of both the parent and the NRI. Such duplication might trigger unnecessary inquiries from the Income Tax Department. Therefore, it is essential to ensure the bank reports the interest correctly under the primary account holder's PAN.
How NRIs Can Sell Property with Minimal TDS Hassle
Another common dilemma involves an NRI based in the US who bought a flat in India over two years ago. Due to an oversupply in the locality, the property's value depreciated instead of appreciating. Now wishing to sell it, the NRI is concerned about the buyer deducting a high rate of TDS on the gross sale value and seeks a way to obtain a nil or lower TDS certificate.
The process is primarily online through the Income Tax Department's TRACES (TDS Reconciliation Analysis and Correction Enabling System) portal. The first step is for the NRI seller to register their PAN on the TRACES website.
Subsequently, they must file an online application in Form 13 for the relevant financial year. This application requires detailed information, including:
- The nature of income (sale of immovable property - capital gains).
- Estimated sale consideration.
- Original cost of acquisition.
- A detailed computation showing the capital gain or, in this case, the capital loss.
- The lower or nil TDS rate being requested.
Supporting documents are critical and must be uploaded with the application. These typically include the original purchase deed, proof of payment made during purchase, the proposed sale agreement, details of selling expenses, and the Tax Deduction and Collection Account Number (TAN) of the prospective buyer.
The application must be verified using a Digital Signature Certificate (DSC) or a One-Time Password (OTP) sent to a registered Indian mobile number.
Processing and Issuance of the TDS Certificate
Once submitted, the concerned assessing officer reviews the application. They may ask for additional information or clarification. After satisfaction with the details, especially the capital gains computation proving a loss or minimal gain, the officer issues a lower or nil TDS certificate on the TRACES portal. This certificate specifies the approved TDS rate and its validity period. It is usually shared with the buyer to ensure correct TDS compliance during the transaction payment.
While the procedure is designed to be online, the processing time can vary depending on the assessing officer's workload and responsiveness. NRIs are advised to initiate this process well before finalizing the property sale to avoid delays.
In summary, NRIs can assist parents with banking without direct tax implications but must guard against reporting errors. For property sales, the online nil TDS certificate application on the TRACES portal is the key to a smoother transaction, provided all documentation around capital gains is in order.
