NRI Property Sales 2026 – Lower TDS Certificate & India-US Investment Advisory

 By CA Surekha S Ahuja

Introduction: The 2026 NRI Property Landscape

As 2026 unfolds, NRIs face a transformed taxation and investment environment for Indian property sales:

• Finance Act 2025: LTCG at 12.5% without indexation, or 20% with indexation for pre-July 2014 properties.

• Section 195 TDS remains a key liquidity issue: buyers must deduct TDS on gross sale proceeds, potentially locking up significant funds.

• US-resident NRIs must consider PFIC taxation, impacting Indian mutual fund investments.

Critical questions for NRIs:

1. Should I obtain a Lower TDS Certificate (Form 13)?

2. How do PAN, Aadhaar, and residential status affect TDS and refunds?

3. Should I reinvest in India or repatriate to the USA?

This guidance note provides a 360-degree roadmap for NRI sellers.

Lower TDS Certificate (Form 13) – Strategic Cash Flow Management

Why Form 13 Matters

• Buyers deduct TDS on total sale value without a certificate.

• With Form 13, TDS is restricted to actual capital gains, often much lower than gross sale value.

• Protects liquidity and blocked capital, especially for high-value sales.

Decision Matrix – When to Apply Form 13

Scenario	Standard TDS (No Certificate)	Form 13 – Lower TDS Certificate	Recommendation
High-cost property, small gain	TDS ~20–24% of total sale	TDS only on gains (0–12.5%)	No-brainer – Apply Form 13
Reinvestment under Sec 54/54EC	Funds blocked 12–18 months	TDS can be reduced to 0%	Apply Form 13
Pre-2014 property	Buyer deducts 20% on gross	AO applies lower of 12.5%/20% with indexation	Apply Form 13
Urgent sale / time-critical	Delays certificate issuance	2–4 weeks wait	Consider skip and claim refund later
Small-ticket sales (<₹25L)	TDS impact low	Certificate cost may exceed blocked interest	Skip if minimal financial impact

New TDS Rates for NRI Property Sales (2026)

Gain Type	Sale Value	Base Rate	Surcharge	Cess	Effective TDS
LTCG	≤₹50L	20%	Nil	4%	20.8%
LTCG	₹50L–₹1Cr	20%	10%	4%	22.88%
LTCG	>₹1Cr	20%	15%	4%	23.92%
STCG	Any	30%	10–15%	4%	31.2–35.88%

Key insight: Form 13 reduces TDS from gross sale value to actual gains, releasing trapped capital immediately.

PAN, Aadhaar & Residential Status – Compliance Imperatives

• PAN: Mandatory; absence triggers Section 206AA, higher TDS

• Aadhaar: Optional but speeds up Form 13 issuance and refunds

• Residential Status: NRIs and RNORs fall under Section 195, not 194-IA

Implications: Proper documentation ensures minimal blocked funds, faster refunds, and smoother repatriation.

Buyer-Facing Compliance Advisory

• Verify seller PAN and documentation

• Request Form 13 for high-value/complex sales

• Collect proof for Sec 54/54EC reinvestments

• Ensure AO applies pre-2014 indexation benefits

• Monitor TDS compliance and timelines

Consequences of non-compliance: penalties, delays, or buyer liability issues.

Repatriation & US-NRI PFIC Advisory

FEMA-Compliant Repatriation

• Limit: USD 1 million per financial year from NRO account

• Requires Forms 15CA & 15CB

• Excess TDS cannot be repatriated until refund is processed

US-NRI Considerations

• Indian Mutual Funds = PFICs, subject to punitive US taxation

• Prefer Direct Equities, PMS, or AIFs

• Plan globally: minimize PFIC exposure, optimize liquidity, and align with US tax rules

India vs. USA – Investment Verdict

Factor	India (Growth)	USA (Safety)
Economy	Fastest-growing large economy	Stable S&P 500, predictable returns
Currency	INR resilient	USD strong (₹90+), hedge volatility
Tax	Complex TDS + ITR	Simpler US tax compliance
Investment	Direct equity, PMS, AIF, commercial real estate	US ETFs, retirement funds

Strategic Recommendation:

• Aggressive (<50, Indian tax resident): Retain proceeds in India; invest in direct equity or commercial property

• Conservative / US-tax resident: Use Form 13, repatriate under FEMA, invest in US-based instruments, avoid PFICs

Common Myths – Debunked

Myth	Reality
TDS = 1%	Only for residents (194-IA). NRIs under 195 = 20–24%
TDS is final tax	Must file ITR to claim refund / pay balance
Repatriation is immediate	Excess TDS waits for refund cycle; USD 1M/year cap
Indian Mutual Funds safe	PFIC rules apply; punitive US tax

Actionable NRI Seller Plan (2026)

1. Confirm residential status, PAN, Aadhaar

2. Compute capital gains (LTCG/STCG)

3. Decide reinvestment vs. exit

4. Apply Form 13 if blocked funds > 15–20% of gains

5. Ensure buyer TDS compliance

6. Plan FEMA-compliant repatriation (USD 1M limit)

7. For US-residents, avoid PFIC exposure; prefer direct equity/US ETFs

Principle: Cash flow, liquidity, and compliance are as critical as tax optimization. Form 13 is a strategic liquidity tool, not just a compliance form.

Final Takeaway

In 2026, NRI property sales require:

• Strategic use of Form 13 to release blocked capital

• PAN/Aadhaar and residential compliance

• Informed decisions on reinvestment vs repatriation

• Awareness of US-PFIC implications for cross-border investors

Proper planning ensures your wealth works for you, not the tax authorities.

 

2026: India’s Family Business Moment of Truth

 By CA Surekha S Ahuja

Continuity Is No Longer Emotional. It Is Institutional.

Great journeys are built on shared purpose. True success is achieved when we rise together. Every chapter ends, but the story continues with new strength and new purpose.

As a profession, we must say this clearly and without hesitation:
2026 is not another succession cycle for Indian family businesses. It is a stress test of institutional maturity.

For decades, family enterprises thrived on entrepreneurial instinct, personal authority, and informal governance. That model delivered growth in a protected economy. It is dangerously insufficient in today’s environment of global capital scrutiny, geopolitical uncertainty, regulatory depth, and generational aspiration.

This is not a warning.
It is a diagnosis.

Why 2026 Is Structurally Different

Several irreversible forces have converged:

• Founders are ageing simultaneously, having built businesses during India’s liberalisation era.

• Next-generation leaders are economically independent, globally mobile, and purpose-driven.

• Capital providers now price governance risk, not just profitability.

• Regulatory frameworks increasingly demand continuity clarity, not promoter-centric explanations.

• Geopolitical volatility rewards institutions, not personalities.

In this environment, a business without a credible succession and continuity framework is not “family-driven.”
It is valuation-impaired.

The Most Dangerous Misconception

Most families still believe succession is a legal, tax, or ownership problem.

That belief is professionally incorrect.

Wills, trusts, and holding companies answer distribution.
They do not answer direction.

Succession fails because families attempt to transfer control without transferring purpose, legitimacy, and authority design.

The next generation does not disengage due to incompetence or entitlement.
They disengage because the enterprise was never positioned as a mission worth inheriting.

What the Need of the Day Demands

The model required in 2026 is not “handover.”
It is institutional continuity through leadership evolution.

1. Purpose Must Precede Property

Every serious family business must document its core philosophy through a Family Constitution that goes beyond ceremonial drafting. It must clearly articulate:

• The founding intent and long-term vision

• The business’s role beyond financial returns

• The separation between ownership rights, leadership responsibility, and family entitlement

Without this, succession collapses into inheritance — and inheritance rarely sustains enterprises.

2. Authority Must Evolve, Not Collapse

Effective families do not eliminate founders.
They redefine authority.

• Founders transition to chairperson, mentor, or custodian roles

• Next-generation leaders assume operational responsibility with accountability

• Decision-making becomes structured, not personality-driven

• Innovation is encouraged without diluting values

This is what “rising together” means in institutional terms.
Continuity is preserved. Relevance is renewed.

3. Succession Must Be Treated as a Strategic Exit Event

The startup ecosystem understands something legacy families often resist:
exits are planned, not improvised.

Succession must be approached with the same rigour as an IPO or M&A:

• Phased leadership transition

• Governance and reporting readiness

• Independent oversight mechanisms

• A clearly articulated continuity narrative

Succession is the moment when a business proves it can outlive its founder without losing its soul.

The Cost of Inaction Is No Longer Abstract

In 2026, absence of clarity leads to predictable outcomes:

• Internal power conflicts disguised as family issues

• Erosion of lender, investor, and counterparty confidence

• Regulatory exposure due to informal controls

• Loss of next-generation talent to external ecosystems

Most critically, it results in quiet abandonment — where heirs remain shareholders but emotionally exit the enterprise.

That is how institutions decay.

Every chapter ends — but the story continues.

The families that will endure the next decade will not be the oldest, the largest, or the most profitable today.
They will be the ones that chose structure over sentiment, continuity over control, and purpose over possession.

Succession is no longer a future discussion.
It is a present governance obligation.

2026 is the year to institutionalise — deliberately, professionally, and together.

Transfer Pricing Compliance Is a Management Obligation — Not a CA Delegation

 By  CA Surekha S Ahuja

The Hidden Governance Risk Behind Form 3CEAA and Master File Filings

One of the most dangerous assumptions in Indian transfer pricing compliance is the belief that “our CA will take care of everything.”
This assumption is not only incorrect — it is statutorily fatal.

Under the Income-tax Act, 1961, key transfer pricing disclosures are required to be made by the entity itself, not by a Chartered Accountant. Yet, the penal consequences attach automatically to the entity, even when senior management claims ignorance.

The Statutory Architecture Most Management Teams Miss

Dual-layer compliance framework under Indian TP law

The law consciously separates certification from governance disclosure:

• Section 92E read with Rule 10E
  → Requires Form 3CEB, certified by a Chartered Accountant

• Section 92D read with Rule 10DA & Rule 10DB
  → Requires Master File (Form 3CEAA) and CbCR-related filings, to be filed by the entity itself

This separation is deliberate.

The legislature treats:

• Arm’s length pricing as a professional certification issue

• Group structure, intangibles, inter-company arrangements, and value creation as management-level disclosures

Why “We Didn’t Know” Has No Legal Standing

Form 3CEAA is not a CA-certified form

Form 3CEAA (Master File):

• Is filed electronically by the entity

• Uses the entity’s PAN and DSC

• Does not require CA certification

• Is governed by Rule 10DA of the Income-tax Rules, 1962

Legally, it is a self-declaration of group facts, not an audit document.

Strict liability penalty regime applies

Section 271GB imposes penalties for:

• Failure to furnish Master File

• Furnishing incomplete or inaccurate information

• Failure to furnish information within prescribed time

Mens rea (intent) is irrelevant.
Ignorance, internal miscommunication, or advisor oversight do not constitute reasonable cause.

Exact Penal Consequences — No Discretion, No Warnings

Penalty structure under Section 271GB

Nature of default	Penalty
Failure to furnish Master File (Form 3CEAA)	₹5,00,000
Failure to furnish information or documents	₹5,000 per day
Continued failure after notice	₹50,000 per day
Furnishing inaccurate information	₹5,00,000

These penalties:

• Are mechanical

• Are often system-detected

• Can be initiated years later during assessment or risk review

Why the Law Places Responsibility on Directors, CEO & CFO

OECD BEPS Action 13 alignment

India’s Master File and CbCR regime is aligned with OECD BEPS Action 13, which treats:

• Group structure

• DEMPE functions

• Financing arrangements

• Intangible ownership

as strategic governance information, not accounting data.

Therefore, the law assumes:

• Management knowledge

• Board-level oversight

• Internal control responsibility

A Chartered Accountant can certify pricing —
but cannot assume responsibility for facts that only management controls.

The Most Common Failure Pattern (Ground Reality)

In practice, non-compliance usually arises because:

• CFO believed turnover threshold applies universally

• CEO was unaware that even one foreign AE transaction triggers Part A

• Directors assumed 3CEB filing covers everything

• Reimbursements or cost allocations were not treated as TP transactions

• No one internally “owned” Form 3CEAA

These are governance failures, not tax calculation errors.

Can Anything Be Done If the Deadline Is Missed?

Late compliance — limited but critical options

The law does not provide automatic condonation, but the following actions can materially reduce exposure:

Immediate corrective filing

• File pending Form 3CEAA before detection

• Demonstrates bona fide intent

Section 273B defence (limited scope)

• Reasonable cause can be argued only in exceptional cases

• Requires strong documentation (system failure, regulatory ambiguity)

Penalty mitigation strategy

• Respond comprehensively to notice under Section 271GB

• Demonstrate absence of inaccurate reporting

• Seek penalty restriction to minimum slab

Important:
Once a system-generated notice is issued, damage control replaces compliance.

Who Is Legally Responsible — Clarity for Boards

Role	Legal Exposure
Board of Directors	Ultimate statutory responsibility
CEO	Group disclosures, structure accuracy
CFO / Finance Head	Transaction identification & filings
CA	Certification under Section 92E only

A CA cannot file Form 3CEAA on behalf of management,
but penalties still fall on the entity.

Governance Safeguards Every Organisation Must Implement

Non-negotiable best practices

• TP Trigger at Payment Stage
  Any foreign payment → TP review triggered automatically

• Explicit Internal Ownership
  One designated officer responsible for Master File & CbCR

• Quarterly TP Governance Note to Board
  Not an annual post-mortem exercise

• Advisor ≠ Owner
  External professionals advise; management remains accountable

The Hard but Necessary Truth

Transfer Pricing compliance is no longer a tax formality.
It is a board-level governance obligation.

Organisations that fail to internalize this will continue to face:

• Automatic penalties

• Retrospective notices

• Audit red flags

• Investor discomfort

Final Professional Takeaway

If a Director, CEO, or CFO does not know that:

• Form 3CEAA is mandatory

• It must be filed by the entity

• Penalties are strict and daily

then the organisation is already exposed, even if Form 3CEB is perfectly filed.

Budget 2026: Optional Joint Taxation—Complete Blueprint with Impact Analysis

 By CA Surekha S Ahuja

India's individual tax system disadvantages single-earner families (nearly 70% of households), where one spouse’s basic exemption and slab capacity remains unutilised while dual-income households optimise taxation separately. This proposal introduces an optional, safeguards-driven joint taxation framework that corrects structural inequity without destabilising revenue.

The Complete Proposal

Eligibility
Married couples with valid PANs may opt for joint taxation annually through a single consolidated return (proposed modified ITR-5). The option is voluntary, reversible each year, and regime-neutral.

Computation Methodology

• Independent deductions first: ₹75,000 standard deduction per spouse, along with eligible deductions under Sections 80C, 80D, etc.

• Aggregation only after deductions, preserving individual savings behaviour.

• Only domestic income eligible for pooling; global income continues to be taxed individually, preserving DTAA architecture and foreign tax credit mechanics.

Joint Slab Structure (Doubled, Not Concessional)

Joint Income (₹ lakh)	Rate
0 – 8	Nil
8 – 16	5%
16 – 24	10%
24 – 32	15%
32 – 40	20%
40 – 48	25%
48 and above	30%

Surcharge thresholds remain fiscally neutral: ₹75 lakh per individual corresponds to ₹1.5 crore under joint taxation.

Scenario Analysis Across Household Profiles

Scenario (Post-Deduction)	Individual Tax	Joint Tax	Impact
Single earner: ₹12L + ₹0	₹1.05 lakh	₹40,000	62% relief
Dual equal: ₹6L + ₹6L	₹40,000 total	₹40,000	Neutral
Dual unequal: ₹10L + ₹2L	₹1.25 lakh	₹90,000	28% relief
High dual: ₹25L + ₹25L	₹6.4 lakh	₹6.4 lakh	Opt-out

The design ensures relief flows only to structurally disadvantaged households, while high-income dual earners remain unaffected.

National Impact Projections

Assuming 25 million married filers and a conservative 20% opt-in rate (5 million households):

• Gross tax relief: ~₹15,000 crore annually

• Incremental disposable income: ₹70,000–80,000 crore

• GDP impact via consumption multiplier (1.2x): ~₹85,000–95,000 crore

• Compliance improvement: +15% filing participation

• Net revenue impact: Broadly neutral due to GST buoyancy and reduced evasion

Ironclad Data Safeguards (Zero Leakage Framework)

All income streams must converge digitally:

Data Source	Safeguard
Form 16	Mandatory employer-wise PAN auto-matching
Form 26AS	Household-level reconciliation
AIS	Mandatory spouse PAN disclosure
Employer / TDS Portals	Joint-filer flagging with penalty exposure

Anti-abuse triggers

• Undisclosed income → automatic disqualification + up to 200% penalty

• Extreme income disparity → audit risk flag

• PAN mismatch → system-level rejection

• Business income transfers → scrutiny trail preserved

Critical Analysis: Addressing Every “If & But”

Strengths

• Restores equity by unlocking unused exemptions

• Recognises unpaid household and caregiving labour

• Optional structure preserves fiscal discipline

• Automation-led administration improves compliance

Risks Neutralised

• Income shifting blocked via AIS/26AS matching

• Global income ring-fenced (DTAA intact)

• Female labour participation monitored with sunset review

• Compliance simplified through single consolidated return

Global Benchmarking

Model	Single Earner	Dual Earner	Fiscal Impact	India Fit
ICAI Aggregation Model	High relief	Neutral	Neutral	Best fit
German Splitting	Very high	Excellent	~1.5% GDP cost	Complex
US Joint Filing	Moderate	Penalty zones	Neutral	Distortive
Pure Individual	Penalised	Optimised	Neutral	Inequitable

Implementation Roadmap

• Statutory amendment to Section 2(31) introducing “joint assessee”

• AIS and ITR utility upgrades with spouse-PAN linkage

• Pilot rollout in FY 2026–27 under the new tax regime

• Continuous monitoring through CBDT analytics and Aaykar Setu

Why Budget 2026 Must Act

This reform is ICAI-backed, technically precise, economically balanced, and administratively feasible. It corrects a long-standing household inequity while preserving revenue discipline and strengthening compliance.

Nearly ₹80,000 crore of household spending power remains locked due to an outdated individual-only tax framework. Budget 2026 has the opportunity to unlock it—responsibly.

Comprehensive Guidance Note on TDS Demands

 By CA Surekha S Ahuja

Legal Position, System Behaviour, Consequential Actions and Resolution Framework

(Applicable to all Financial Years under the Income-tax Act, 1961 and the Income-tax Act, 2025)

Purpose and Applicability

This Guidance Note provides a consolidated and authoritative framework for understanding, managing, and resolving all types of TDS demands, irrespective of:

• the financial year involved,

• whether the demand is legacy or current, or

• whether it is system-generated or officer-driven.

It is intended for Boards of Directors, Audit Committees, CFOs, Tax Heads, Chartered Accountants, and Legal Advisors and is designed to serve as a practical operating manual rather than a theoretical exposition.

Executive Overview

TDS demands today operate in a highly automated, time-bound, and system-driven environment.
The scope for post-facto correction has narrowed significantly, and under the Income-tax Act, 2025, it has been further compressed to a two-year statutory window.

Accordingly:

• Certain TDS demands are curable,

• certain demands are disputable, and

• certain demands—particularly time-barred legacy demands—are final and irreversible.

Correct identification of the nature and stage of a TDS demand is therefore critical, as it directly determines the available remedy.

Classification of TDS Demands

Every TDS demand must first be classified into one of the following categories:

Statement-Related Demands

Arising from errors in TDS statements, such as:

• incorrect PAN reporting,

• challan mismatches,

• incorrect section or rate,

• late filing fee under Section 234E, or

• interest computation under Section 201(1A).

Deduction-Related Demands

Arising from substantive defaults, including:

• short deduction,

• non-deduction, or

• non-application of a valid lower or nil deduction certificate.

Time-Barred / Legacy Demands

Demands relating to periods where the statutory window for correction has expired (notably periods up to FY 2018-19 Q3).

Adjustment-Based Demands

Demands arising due to:

• automatic adjustment of refunds under Section 245, or

• CPC-initiated set-offs without fresh adjudication.

This classification governs what can still be done and what is no longer permissible.

How TDS Demands Are Generated

Online System Processing (CPC / TRACES)

1. TDS statement is processed under Section 200A

2. System detects mismatch or default

3. Demand is computed (tax, interest, fee)

4. Demand is reflected across:

   • TRACES

   • CPC portal

   • AIS / TIS

   • Refund adjustment dashboard

This process is fully automated and largely non-discretionary.

Offline Departmental Action (AO / TDS Officer)

Where defaults persist or are substantive:

• orders are passed under Section 201(1),

• interest is levied under Section 201(1A), and

• recovery proceedings may be initiated.

Importantly, once limitation expires, neither CPC nor the AO has authority to permit correction, regardless of merits.

Legal Limits on Correction and Rectification

Correction of TDS Statements

• Under the Income-tax Act, 1961: correction was permitted within six years

• Under the Income-tax Act, 2025: correction is permitted only within two years

Once this window expires:

• correction uploads are system-blocked, and

• rectification under Section 154 is not available.

Special Position of Legacy Periods

For time-barred periods:

• statements are treated as final,

• demands are crystallised, and

• no transition benefit is available under the new Act.

These demands are closed in law and closed in system.

Consequences of an Outstanding TDS Demand

If a TDS demand remains unresolved:

• interest continues to accrue,

• refunds are automatically adjusted under Section 245,

• recovery proceedings may commence under Section 222,

• bank accounts may be attached,

• compliance ratings are adversely impacted, and

• statutory audit and CARO reporting implications arise.

TDS demands therefore represent not merely a tax exposure, but a governance and financial reporting issue.

Permissible Actions – Online and Offline

Online Actions Available

Subject to limitation and facts:

• filing correction statements (where legally open),

• filing appeals under Section 246A,

• applying for stay of demand (Form 13),

• responding to CPC communications, and

• payment of demand through Challan 281.

Offline Actions Available

Limited to:

• representation for instalments or stay,

• personal hearings on merits (not on limitation), and

• collection of deductee confirmations for appellate support.

Offline representations cannot override statutory limitation or system blocks.

Resolution Framework – Decision Approach

Correction (Where Open)

Appropriate for procedural errors and must be undertaken immediately, as delay may permanently foreclose this option.

Appeal

Appropriate where:

• demand is duplicative,

• tax has already been paid by the deductee, or

• jurisdictional or legal infirmities exist.

Interest continues unless a stay is granted.

Payment and Closure

Appropriate where:

• default is clear,

• deductee has already claimed credit, or

• cost of litigation outweighs benefit.

This provides finality and certainty.

Provisioning and Monitoring

Appropriate where:

• demand is disputed, and

• litigation outcome is uncertain.

Such demands generally require accounting provision rather than mere disclosure.

Governance and Internal Control Expectations

Every organisation should:

• maintain a TDS demand register,

• review demands periodically,

• track correction limitation dates,

• document decisions on appeal or payment, and

• keep the Board and Audit Committee appropriately informed.

Failure to do so exposes management to avoidable financial and compliance risk.

Position Going Forward under the Income-tax Act, 2025

The new Act reflects a clear legislative intent:

• faster finality,

• shorter correction windows, and

• minimal tolerance for legacy non-compliance.

Early identification and timely correction will be critical to risk management.

Concluding Professional Position

TDS demands are no longer routine compliance irritants.
They are statutory obligations with direct financial, governance, and reputational consequences.

The law, the system, and departmental practice now operate in unison:

• correction is time-bound,

• discretion is limited, and

• finality is enforced.

Accordingly, the only sustainable approach is early diagnosis, informed decision-making, and decisive resolution.

“Every TDS demand has a limited life cycle. Once the correction stage is missed, only appeal or closure remains.”

Expatriate Taxation in India 2026: Section 115BAC – Legal End-State and Strategic Guidance

 By CA Surekha S Ahuja

This guidance note consolidates statutory analysis, ICAI interpretation, amendments, and practical implications to outline the current end-state of expatriate taxation in India. It is intended for CFOs, global mobility teams, HR, and compliance officers.

Expatriate as Defined by Law
Indian tax law does not explicitly define “expatriate.” Taxation depends on residential status, source of income, employer nexus, and treaty eligibility:

• Residential Status (Sec 6, Sec 6(1A)) – Determines RNOR/NR/Resident classification; triggers global taxation for RNORs.

• Source of Income (Sec 9) – Salary, allowances, and benefits paid by an Indian employer are treated as Indian-sourced income.

• Employer Nexus (Sec 2(24)(ii), Sec 17(1)) – Direct employment by an Indian company triggers full tax liability.

• Treaty Eligibility (DTAA, various articles) – Prevents double taxation but does not reduce slab-based liability under 115BAC.

Reasoning: Legal determination relies on status, source, and employer nexus, not arbitrary policy. Misclassification of residential status can result in automatic RNOR taxation, including global income.
Caution: Regularly audit residential status, especially for NR→RNOR transitions, to prevent unexpected taxation.

Section 115BAC: Default Regime and Restrictions
Finance Acts 2023 and 2024 made 115BAC the default regime for salaried individuals, including expatriates, unless explicitly opted out.

Key Legal Changes:

• HRA (Sec 10(13A)) and LTA (Sec 10(5)) deductions removed

• Chapter VI-A deductions (80C, 80D, etc.) disallowed

• Allowance structuring neutralised

Analysis: Taxable income is now fixed by statute, eliminating the variability historically used for gross-up and mobility planning.
Caution: Expatriates must accept 115BAC as economic reality; traditional gross-up calculations will understate effective tax.

Gross-Up and Tax Equalization
Relevant Sections: Sec 10(10CC) (tax-free allowances and gross-up rules) and Sec 40(a)(v) (disallowance of certain reimbursements).

Implications:

• Multi-stage gross-ups now collide with statutory disallowances

• Net-zero equalization achievable only via flat 45% gross-up

• Old models relying on deductions for offset are invalid

Reasoning: The combination of 115BAC and Section 40(a)(v) mathematically ensures gross-up escalation, making prior planning economically unviable.
Caution: Recalculate all gross-up policies; failure will directly impact P&L.

ESOP Taxation Framework
Sections involved: Sec 17(2)(vi), 115BAC slabs, Sec 10(10CC).

Key Observations:

• Vesting-period apportionment (Keltz ratio) ignored

• FMV at exercise taxed at slab rates

• No Chapter VI-A relief available

Analysis: ESOP compensation is now immediately taxable at high rates, converting deferred incentives into effective cost and cash outflow.
Caution: Pre-India vesting or exercise should be prioritised; post-India vesting carries ~42% effective tax.

DTAA and Short-Stay Rules

• 90-day ITA exemption survives

• 183-day DTAA threshold survives

• Elimination of domestic deductions removes structuring space

Reasoning: DTAA now functions as a compliance shield, not a tax optimisation tool. Deployments beyond 90 days carry PE and RNOR exposure.
Caution: Use the Business Visitor model wherever possible.

Deemed Residency (Section 6(1A))
Indian citizens earning ₹15L+ with no foreign tax liability automatically become RNOR. ICAI data: NR → RNOR conversion probability ~78%.

Analysis: The statute triggers automatic global taxation; there is no discretion. Foreign income is included even for expatriates with minimal Indian presence.
Caution: Evaluate potential RNOR triggers before assigning or extending international employees to India.

Compliance Requirements

• Form 10F (Notification July 2022) – Required for FTC claim; failure denies treaty benefits

• Form 12BB – Legal filing required even if HRA not claimed

• Form 67 + TRC (Sec 90/91, time-barred post-AY) – FTC claims limited if not filed timely

• GST RCM on reimbursements (Sec 9(3), Sec 9(4)) – 18% on secondment reimbursements; TP cross-charges largely unarbitrageable

Reasoning: Compliance obligations now enforce cost certainty, eliminating historical planning flexibility.
Caution: Treat compliance as a cost driver, not an administrative formality.

Post-Analysis Impact – Government & Taxpayer
Government Gains: Predictable revenue with no deduction-based gaming; simplified slab-based audits; real-time visibility of planners via Form 12BB.

Taxpayer Reality: The Business Visitor model is the only viable deployment strategy; Form 12BB remains operationally painful; 115BAC must be accepted as economic reality; all other structures reach mathematical exhaustion.

This is not a policy debate. This is arithmetic finality.

Strategic Action Points

• Freeze or renegotiate all expatriate contracts immediately

• Limit India presence to ≤90 days wherever feasible

• Prioritise pre-India ESOP exercises

• Recalculate gross-ups and net-zero policies to reflect 115BAC reality

• Audit TRC, Form 10F, Form 12BB, and GST compliance before claiming credits

• Monitor residential status changes to avoid RNOR-triggered taxation

Analytical Verdict
Expatriate taxation in India is now statutorily deterministic. Planning levers are removed, gross-ups have escalated, and compliance obligations enforce certainty. Only Business Visitor deployments survive. The ICAI 6th Edition is not guidance for future policy but a confirmation of final equilibrium: expat tax planning in India has mathematically and legally reached its endpoint.

Makar Sankranti 2026: The Kite Doctrine — Why Family Businesses Rise Together or Fall Apart

“Makar Sankranti is not a festival for family businesses. It is a governance deadline.”

By CA Surekha S Ahuja

It is a moment of reckoning.

As the Sun begins its northward journey (Uttarayan), Indian tradition marks the shift from inertia to movement. In family enterprises, the same moment defines whether leadership evolves into an institution—or remains trapped in personality.

Surya to Shani: Authority Must Become Order

Makar Sankranti marks the Sun’s entry into Capricorn, governed by Shani.

In Vedic understanding:

• Surya symbolises the founder—vision, command, presence.

• Shani symbolises succession—discipline, systems, accountability.

This transition is not a reduction of power.
It is the formalisation of power.

Family businesses fracture when authority is retained emotionally instead of transferred structurally.

The Rig Veda offers no ambiguity:

“Sangachhadhwam samvadadhwam”
Progress is collective—or it is not progress.

Uttarayan in the Gita: Detachment Is Leadership

The Bhagavad Gita (8.24) describes Uttarayan as the path of transcendence. In enterprise terms, it demands detachment from ego and attachment to order.

This is why nearly 70% of Indian family businesses do not survive beyond the second generation. Governance postponed inevitably becomes conflict accelerated.

The Kite Doctrine

A kite does not rise because it is free.
It rises because it is controlled.

Vision (The Kite): One institutional direction, not competing ambitions.
Governance (The Thread): Defined ownership, succession clarity, compliance discipline, and capital logic.
Purification (The Fire): Periodic removal of inefficiencies, legacy burdens, and unresolved egos.

When the thread weakens, collapse is only a matter of time.

Conclusion

Family businesses do not break in courts.
They break in silence.

Makar Sankranti does not ask families to celebrate.
It demands that they align.

Hold the thread together—or watch the kite fall.

 

TCS on Sale of Scrap to Manufacturing Units – Legal, Procedural & TRACES Compliance

By CA Surekha S Ahuja

Section 206C(1) | Form 27C | Rule 37CA | Form 27EQ | TRACES | CPC-TDS

Tax Collected at Source (TCS) on sale of scrap under Section 206C(1) is one of the most procedurally sensitive areas in Indian tax compliance. In real-world practice, TCS demands rarely arise due to incorrect taxability; they arise due to procedural lapses, particularly incorrect or non-reporting of Form 27C in Form 27EQ on TRACES. This guidance note is designed as a litigation-safe, CPC-aligned, and practitioner-ready manual, with special emphasis on TRACES-based reporting mechanics, which is the most common failure point.

Statutory Framework – At a Glance

Provision	Subject
Section 206C(1)	TCS on specified goods including scrap
Explanation (b) to 206C	Definition of scrap
First Proviso to 206C(1)	Exemption via Form 27C
Rule 37C	Declaration by buyer
Rule 37CA(3)	Electronic reporting of Form 27C
Form 27C	Buyer declaration
Form 27EQ	Quarterly TCS return
Form 27D	TCS certificate

Meaning of ‘Scrap’ – Legal Precision Required

As per Explanation (b) to Section 206C:

“Scrap” means waste and scrap from the manufacture or mechanical working of materials which is definitely not usable as such.

Practical Implication:

• Scrap must arise from manufacturing or mechanical processes

• It must be commercially unusable in original form

• Sale of usable items, obsolete machinery, or surplus goods does not qualify as scrap

Misclassification invalidates Form 27C exemption and exposes the seller to full TCS liability.

Applicability of TCS on Scrap – Absolute Charge

• Scrap is covered only under Section 206C(1)

• No monetary threshold applies

• Section 206C(1H) is not applicable to scrap under any circumstance

TCS is required at the time of receipt or debit, whichever is earlier.

Rate of TCS on Scrap

Particulars	Rate
PAN furnished	1%
PAN not furnished	5%

TCS collected is not an expense of the seller and is credited to the buyer’s tax account.

Exemption for Sale of Scrap to Manufacturing Units

Statutory Basis:

First Proviso to Section 206C(1) provides that no TCS shall be collected if:

• Buyer purchases scrap for:

  • Manufacturing

  • Processing of articles or things

  • Generation of power

• Goods are not for trading or resale

• Buyer furnishes Form 27C to the seller

Form 27C – Nature, Responsibility & Legal Effect

Form 27C does not automatically grant exemption. Exemption becomes effective only when the declaration is correctly reported in Form 27EQ.

Responsibility Matrix:

Activity	Responsible Party
Furnishing Form 27C	Buyer
Verification of declaration	Seller
Reporting to Income-tax Dept.	Seller
Consequence of default	Seller

Reporting of Form 27C – Correct TRACES-Based Procedure

Important Clarification:

❌ Form 27C is not filed separately with Assessing Officer, Commissioner, CPC, or TRACES as an independent form.

Statutory Authority:

📌 Rule 37CA(3) mandates that particulars of Form 27C must be furnished electronically in the quarterly TCS statement (Form 27EQ). Failure results in automated TCS demand, interest under Section 206C(7), and fee under Section 234E.

Correct & Mandatory Compliance Flow:

• Buyer furnishes Form 27C to Seller before sale/receipt containing Buyer PAN, Purpose of purchase, Declaration of non-trading use, and Verification.

• Seller verifies PAN validity, nature of buyer’s business, and consistency with scrap usage.

• Seller files Form 27EQ (Quarterly TCS Return), reporting the transaction.

• In Form 27EQ/ TRACES, select “No TCS collected” with reason “Declaration received under Form 27C”.

• No ITNS 281 challan is required.

CPC Verification:

• Scrap transaction reported in Form 27EQ

• TCS amount

• Exemption reason

• Form 27C indicator

Physical Form 27C is examined only during assessment, not by CPC.

Common Errors Triggering Demand:

• Transaction not reported

• Exemption flag missing

• Wrong section selected

• Late filing of Form 27EQ

• PAN mismatch

Golden Rule: If Form 27C is not reported in Form 27EQ, it is deemed non-existent for CPC.

Interaction with Section 194Q

• Scrap is specifically covered under Section 206C(1)

• Section 194Q applies only when Form 27C is not furnished

• Once valid Form 27C exists, neither TDS nor TCS applies

CBDT Circular No. 13/2021 supports this interpretation.

Seller’s Procedural Compliance Checklist

Before Sale: Identify whether goods qualify as scrap, Obtain Form 27C in advance, Verify buyer PAN and purpose.

Quarterly: Report transaction in Form 27EQ, Select Form 27C exemption flag, File within due date.

Record Retention: Preserve Form 27C, Reconcile with AIS / TCS ledger.

Consequences of Procedural Lapses

Even without tax intent, seller may face Interest under Section 206C(7), Fee under Section 234E, Penalty under Section 271CA, CPC rectification, and litigation burden.

Final Professional Takeaway

In scrap transactions, the law is clear, but procedure is decisive.

A correctly obtained but incorrectly reported Form 27C is legally ineffective. For CPC and TRACES, compliance is data-driven, not document-driven.