NRI Avoids 78% Tax Notice on Property Payment: ITAT Mumbai's Ruling

When an Australia-based NRI (Non-Resident Indian) bought a Rs 32 lakh flat in India, he did not expect a tax shock. Part of the payment — Rs 14.70 lakh — was made through his mother’s bank account. Since he had not filed his Income Tax Return (ITR) for FY 2016-17, the tax department treated this portion as an “unexplained investment” and proposed tax at a staggering 78%. The matter eventually reached the Income Tax Appellate Tribunal (ITAT) Mumbai, which gave him relief after examining the fund trail.

This case was highlighted by tax advisory platform TaxBuddy in a detailed thread on social media platform X, explaining how proper documentation helped the NRI avoid a heavy tax burden. Before moving further, let’s understand taxation rules with regard to NRI Praveen buying a property and making payment directly from his or her own account or from a relative’s bank account in India.

An NRI needs to file an ITR only when he or she has any taxable income in India during the financial year. This includes income such as rent from property, capital gains from selling property or shares, interest from certain bank deposits (other than exempt NRE accounts), or any other income that exceeds the basic exemption limit. However, if an NRI has no taxable income in India and only earns income abroad, then filing an ITR in India is generally not mandatory. In cases like property purchases, even if there is no income, filing an ITR can sometimes help avoid scrutiny because large financial transactions get reported to the tax department and may trigger questions about the source of funds.

Praveen had not filed his ITR for the relevant financial year. Information about his property purchase was flagged to the tax department, which initiated reassessment proceedings. During scrutiny, the assessing officer accepted payments made directly from Praveen’s own bank account. However, Rs 14.70 lakh paid via his mother’s account was treated as unexplained investment under Section 69 of the Income Tax Act. The department questioned whether the money used actually belonged to him.

Many NRIs transfer funds to parents or close relatives in India for convenience, especially in property transactions. Often, parents make payments on their behalf. But from a tax officer’s perspective, two questions become crucial: Whose money was it originally? Can the taxpayer prove the fund trail with documents? If the source cannot be clearly established, the amount may be taxed as unexplained investment — sometimes at very high effective rates including surcharge and penalty.

Praveen explained that he had been transferring money from Australia to his mother since becoming an NRI in 2011. The Rs 14.70 lakh used for the flat was not her independent income. Instead, he transferred funds to his mother’s account and his mother invested the money in term deposits. The deposits matured over time and the maturity proceeds were used to pay for the property. In short, the money trail showed that the source was Praveen’s own remittances.

After examining the documentary evidence, the ITAT Mumbai accepted the explanation and the complete fund trail. The Tribunal held that since the source of funds was properly established, the payment made through the mother’s bank account could not be treated as unexplained investment. The addition of Rs 14.70 lakh under Section 69 was deleted, giving major relief to the NRI. However, it is important to note that this is an ITAT-level ruling. Such decisions can still be appealed before higher courts.

This case underlines one simple but critical point: Sending money to parents is not illegal or problematic. The real risk arises when you cannot prove the origin and movement of funds. For NRIs, a basic safety checklist includes: -Always transfer funds through proper banking channels -Preserve remittance proofs and foreign inward remittance certificates (FIRC), if applicable -Keep bank statements and deposit records -Maintain relationship proof and written confirmations -In cross-border transactions, documentation is your strongest defence.

For many NRIs investing in Indian real estate, this ruling serves as both a warning and reassurance — compliance and paperwork matter as much as the investment itself.