The proposed New Income Tax Bill 2025 has stirred significant attention—particularly for two reasons that directly affect both Indian residents and NRIs:
- The removal of 'nil TDS certificate' provisions for all taxpayers, including NRIs.
- A major tax relief for flat owners undergoing redevelopment.
Let’s break down what this means for you.
1. No More Nil TDS Certificates: What It Means
The proposed tax bill eliminates the concept of a "Nil TDS Certificate" by removing the words “no deduction” from relevant sections. This change impacts
taxpayers who:
- Expect to receive income that is not taxable (either fully or partially)
- Used to apply for a nil or lower TDS deduction to avoid unnecessary deduction at source
Earlier Scenario
If you were to receive income (say rent, interest, or capital gains) on which your final tax liability was zero or lower than the TDS rate, you could apply for a
Nil TDS or Lower TDS certificate from the IT department. Upon approval, the payer would deduct TDS accordingly—or not at all.
What Changes Now?
With the removal of the nil certificate, TDS may be deducted at the default rate regardless of your actual tax liability. This could lead to cash flow issues, especially for NRIs receiving rental income, property sale proceeds, or dividends from India.
For example:
- You're an NRI selling property in India.
- Your actual tax liability (after indexation, deductions, etc.) is low or nil.
- But TDS of 20% or more might still be deducted upfront.
2. Major Relief for Flat Owners in Redevelopment Projects
In a significant judgment, the Mumbai Income Tax Appellate Tribunal (ITAT) has ruled that no income tax will be levied on a taxpayer who exchanges an old flat for a new one during redevelopment.
What Happened?
- Many housing societies in Mumbai and other metros are undergoing redevelopment.
- Members surrender rights in the old flat and receive a new flat in exchange.
- The Income Tax Department had started treating this as income under Section 56
(Income from Other Sources).
The Ruling
The ITAT bench ruled that:
“Surrendering an old flat in exchange for a new one does not constitute taxable income.”
Since this is an exchange of rights and not a transfer for inadequate consideration, it won’t trigger Section 56. A huge sigh of relief for homeowners!
Frequently Asked Questions (FAQs)
Q1: What is a Nil TDS Certificate?
A: It's a certificate issued by the Income Tax Department allowing no TDS to be deducted from your income, usually when your total tax liability is zero.
Q2: Who typically needs a Nil TDS Certificate?
A: NRIs or resident taxpayers expecting non-taxable income—like exempt capital gains, tax-free bonds, or low rental income.
Q3: How will the removal impact NRIs?
A: NRIs may face higher upfront TDS, even when their actual tax liability is low or nil. They would need to file returns and claim refunds instead.
Q4: Is there any workaround?
A: As of now, none officially. But we recommend advance tax planning and staying in touch with a tax advisor.
Q5: Does the redevelopment ruling apply across India?
A: While this ruling is from the Mumbai ITAT, it sets a strong precedent. Tax officers in other jurisdictions may follow the same rationale.
Q6: What should flat owners do during redevelopment?
A: Ensure proper documentation of the agreement with the builder. Consult a CA for capital gains implications if extra monetary compensation is involved.
Final Word
The New Income Tax Bill 2025 brings mixed news. While the removal of nil TDS certificates could mean cash flow hurdles, the redevelopment ruling is a positive move for homeowners. At NRIMitr, we recommend early tax planning and professional advice, especially for NRIs dealing with property transactions or expecting sizable Indian income.
Stay updated, stay compliant.
