TDS deducted from payment to NRI
I am an NRI and booked commercial property with a builder in 2008. This year during Jan, builder paid me penalty amount, as the possession was offered late. Instead of paying me, builder deducted this penalty amount from the final payment due from me to the builder. Since I am an NRI, builder deducted more than 30% as TDS on this penalty payment and deposited to govt.
Now my question is; Does this penalty payment form a part of my taxable income during last financial year or not? If not, then should I be claiming back all the deducted TDS back from govt when I file my tax return?
Thanks for your reply. Ashish
Asked 3 years ago in Income Tax from Gurgaon, Haryana
To determine the taxability of penalty amount received from the builder, you will have to answer one question, whether this purchase of commercial property was for investment purpose or
for the purpose of trading in property. I presume that this was purchased for investment purposes to derive rental income from leasing of the said property. In such a case the penalty amount received from the builder is a capital receipt and not liable to tax as income and you may claim exemption from incom tax and receive refurn. But if you are engaged in business of buying and selling of properties then such amount received is business income liable to tax.
The penalty that has been credited to your account is a capital receipt and does not fall with the ambit of income or the income from the other sources ( section 56 ) .
So you can claim the refund of the above TDS .
The penalty paid to you is the capital receipt and would be adjusted with your cost of acquisition of the capital assets .
CA, New Delhi Area, India
In the present case the penalty credited to your account will reduce the cost of acquisition. This will be a capital receipt and will not form part of your taxable income.
You can claim the TDS back from the govt at the time of filing your tax returns.