Section 148 Reassessment - NRI Property Sale, Hyderabad

The Problem

An NRI based in California, USA received a Section 148 notice from the Income Tax Department five years after selling a 2BHK apartment in Hyderabad for ₹68 lakhs. The department alleged that long-term capital gains of ₹68L (the full sale value) had escaped assessment, as no ITR had been filed for the year of sale.

The notice arrived as a shock — the client had assumed TDS at 20% (deducted by the buyer at source) discharged all tax obligations and that no ITR filing was required. The potential demand, if the AO treated the full sale price as taxable, was approximately ₹14L in additional tax plus interest.

Why This Happens

Under Section 194IA, buyers of property from NRIs must deduct TDS at 20% on the sale price (not the capital gain). This often results in excess TDS. However, TDS deduction does not substitute for ITR filing — the NRI must still file a return to compute actual capital gains (using indexed cost of acquisition) and claim refund of excess TDS. Failure to file triggers Section 148 reassessment based on information received from the Sub-Registrar's office.

What We Did

Residential Status Determination We first established the client's residential status for the year of sale (FY 2019-20). Physical presence records confirmed she had spent fewer than 60 days in India that year — making her an NRI under the Income Tax Act for that year.

Cost of Acquisition with Indexation The apartment was purchased in 2009 for ₹22 lakhs. We applied the Cost Inflation Index (CII) to compute the indexed cost:

• Purchase year CII (FY 2009-10): 148
• Sale year CII (FY 2019-20): 301
• Indexed cost = ₹22L × (301/148) = ₹44.7 lakhs
• Actual Long-Term Capital Gain = ₹68L − ₹44.7L = ₹23.3 lakhs

ITR-2 Filing with Form 67 We filed a belated ITR-2 for AY 2020-21 declaring the LTCG of ₹23.3L at 20%. TDS already deducted by the buyer was ₹13.6L, resulting in a net tax payable of approximately ₹1.1L after TDS credit — with the balance of TDS becoming a refund due.

Section 148 Response We filed a detailed response to the Section 148 notice attaching the ITR, capital gains computation, Sale deed, purchase deed, indexed cost workings, Form 26AS TDS records, and residential status documentation. We submitted that income had NOT escaped assessment — the ITR had now been filed and the correct capital gain computed.

The Result

The AO accepted that the matter was fully addressed by the belated ITR filing. The reassessment proceedings were dropped. The client received a refund of approximately ₹12.5L (excess TDS) and paid net tax of ₹1.1L — a 60% reduction from what would have been payable on the full sale value.

Key Takeaway: NRIs selling property in India must file ITR even if the buyer has deducted TDS at source. Indexation typically reduces the capital gain substantially and creates a TDS refund. Filing proactively avoids the stress and legal costs of Section 148 proceedings.