Income Tax impact-Purchase & sale of house property by Indian resident through relative's NRI funds

Who signed the sale deed?

Whether it was signed on behalf of NRI?

Whether TDS was deducted? if yes, under whose PAN?

Key implications, assuming the property is in A's name:

• Receipt from the NRI: if the NRI is a "relative" (Sec 56(2)(x) Explanation), the amount is a tax-free gift to A. If not a relative, it is taxable unless documented as a loan.

• Benami risk: property paid for by one person and held in another's name is benami, unless an exception applies. Sec 2(9)(A)(b)(iv) of the Benami Act covers property held in the name of a brother, sister, lineal ascendant or descendant, where the payer is named as joint owner. Paperwork (a gift deed or loan agreement) is critical.

• Capital gains on sale: taxable in A's hands as legal owner. Report in ITR-2, with Sec 54/54EC available.

• Remitting proceeds back to the NRI:

– This is a gift or loan repayment by a resident under LRS (limit USD 250,000 a year).

– Form 15CA/CB is required.

– TCS under Sec 206C(1G) applies above Rs 10 lakh a year (20% on gift remittances).

– For the NRI, a gift from a relative is exempt in India (Sec 9(1)(viii) / 56(2)(x) proviso).

• If the NRI is the real owner: the property should have been in the NRI's name (FEMA permits NRIs to buy residential property). Repatriation would then be under the USD 1 million facility after paying tax, and the buyer would deduct TDS under Sec 195.

• Get the paper trail (gift deed or loan agreement, NRE/NRO bank trail) in order before any notice.

The tax result depends on who beneficially owned the property and whether the transfer of money was a genuine loan, gift or agency arrangement. Merely routing the purchase and sale money through Person A’s bank account does not, by itself, make A the owner or the person taxable on the capital gain.

• If A bought and owned the property: A is generally taxable on the sale under capital gains rules, including the applicable holding-period and computation provisions. Remitting the sale proceeds to the NRI does not transfer A’s tax liability. The initial funding should be documented as a loan, gift or other legally valid arrangement; otherwise, unexplained-credit questions may arise.
• If the NRI was the beneficial owner and A acted only as nominee/agent: retain evidence of the arrangement, source of funds, title and sale proceeds. The NRI may be taxable in India on the property’s capital gain, with applicable return, PAN, tax-payment and withholding requirements. A should be able to reconcile the inflow and onward remittance and show that no beneficial amount accrued to A.
• If the NRI gifted the funds to A: the relative relationship must meet the statutory definition of “relative” for the gift exemption; a later repayment may be inconsistent with a completed gift. Also verify FEMA/RBI rules for the original funding and repatriation, and any bank reporting or tax withholding applicable to the NRI’s status and transaction.

Preserve the sale deed, purchase documents, bank trail, funding agreement, proof of the NRI’s source of funds, sale computation and remittance records. Before filing, confirm the registered owner(s), exact relationship, funding terms, purchase/sale dates, residency status and amount remitted; these determine the tax and compliance treatment.

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