interest earned on account of funds borrowed for specific purpose shall not be taxed but  interest received on investment of surplus funds is taxable in other income.

In the matter of HP Power Transmission Corporation Ltd Vs DCIT, ITAT gave order.

Assessee company HP Power Transmission Corporation Limited (HPPTCL), a Government undertaking, was yet to start commercial operation. As per details of “Other income”, assessee had earned interest on bank deposit during period relevant to AY. Interest was earned on surplus funds available with assessee company but it was not offered for taxation. AO rejected assessee’s submission in that regard and interest was assessed to tax in hands of assessee as ‘income from other sources”. As CIT (A) upheld AO’s order, assessee filed present appeals. Both AO and CIT (A) had held that issue had been decided against assessee by ITAT in preceding years and facts of relevant AY were not different from preceding AYs.

On Appeal, ITAT held that,

Whether interest earned on account of funds borrowed for specific purpose can be taxed – NO: ITAT.

Regarding interest income earned, the relevant fact was nature and composition of interest income earned, i.e, surplus funds and specific purpose funds and not factum of loan. For earlier AY in assessee’s case, when interest was earned by assessee on surplus funds available with it, issue was decided against assessee. For AY in case of HP Power Corporation, assessee had borrowed certain amount from Asian Development Bank (ADB) for specific project and on account of delay in project, parked the amount in temporary investments in FDRs. Interest earned thereon was held by ITAT to be not taxable. Thus, facts during the year were partly different with funds having been borrowed for specific purpose and parked in FDRs as temporary investments on account of delay in project. Thus, distinction in facts in the aforestated two orders was that while in case of assessee in earlier years, interest was found to be earned on surplus funds and hence held taxable, in case of HP Power corporation, interest was earned on specific purpose funds deposited in FDRs on account of delay in execution of projects and therefore, held not taxable. It was thus held that interest received to extent of ADB loan parked in investments in FDRs was not revenue in nature and not liable to be taxed under the head “income from other sources”.

• ITA No. 789/Chd/2019
• ITA No. 790/Chd/2019

If a startup issues equity shares at a price exceeding their fair market value (FMV), the excess amount was earlier taxed as income under Section 56(2)(viib) of the Income Tax Act. However, the Finance Act, 2024, abolished this provision, commonly known as the “Angel Tax.”

Now, startups are no longer liable to pay tax on the excess amount received over FMV for equity share issuance. This change aims to encourage investments in startups without tax burdens on fundraising activities.

Previously, eligible startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) were exempt from this tax under certain conditions. While this exemption is now redundant due to the abolition of Section 56(2)(viib), startups should still comply with regulatory guidelines for share issuance.

This legislative change significantly enhances the startup ecosystem by providing more flexibility in raising capital without additional tax implications.

TDS on Purchase of Property from an NRI – Rate & Process

If you are buying a property from a Non-Resident Indian (NRI), you are required to deduct TDS under Section 195 of the Income Tax Act. The process is different from buying a property from a resident Indian.

🔹 TDS Rate on Property Purchase from an NRI

📌 Additional Charges:

• Surcharge: 10% (if sale consideration is between 50 Lakhs to 1 Cr), 15% (if > sale consideration is more than ₹1 crore)
• Health & Education Cess: 4% on tax & surcharge

🚨 Key Point: Unlike resident sellers (where TDS is 1% under Section 194-IA), TDS for an NRI seller is deducted on the entire sale value, NOT just on profit.

🔹 TDS Deduction & Payment Process

✅ Step 1: Obtain TAN (Tax Deduction Account Number)

• Buyers must obtain TAN (Tax Deduction Account Number) before deducting TDS.
• TAN can be applied online via the NSDL website.

✅ Step 2: Deduct TDS & Pay to the Government

• Deduct TDS before making payment to the NRI seller.
• Deposit the TDS with the government using Challan ITNS 281.
• Payment is made via the NSDL portal within 7 days of the following month.

✅ Step 3: File TDS Return (Form 27Q)

• TDS return must be filed quarterly using Form 27Q (TDS on Non-Residents).
• Due dates:
  • Q1 (Apr-Jun): 31st July
  • Q2 (Jul-Sep): 31st October
  • Q3 (Oct-Dec): 31st January
  • Q4 (Jan-Mar): 31st May

✅ Step 4: Issue TDS Certificate (Form 16A)

• After filing Form 27Q, generate Form 16A (TDS Certificate).
• Provide Form 16A to the NRI seller as proof of tax deduction.

🔹 Lower TDS Deduction Option

If the NRI seller’s total tax liability is lower than the deducted TDS, they can:
✔ Apply for a Lower TDS Certificate (Form 13) from the Income Tax Department.
✔ Submit the certificate to the buyer to deduct TDS at the reduced rate.

🔹 Key Points to Remember

✔ TAN is mandatory for buyers deducting TDS from an NRI seller.
✔ TDS is deducted on the entire sale value, not just profit.
✔ File TDS returns (Form 27Q) on time to avoid penalties.
✔ NRI sellers can claim a refund of excess TDS while filing their ITR.