In a significant ruling that offers major clarity to Non-Resident Indians (NRIs) investing in India, the Income Tax Appellate Tribunal (ITAT) Mumbai has quashed a ₹2 crore tax addition imposed on Rajnish Kasturchand Ostwal, an NRI who bought a residential property in Mumbai using money earned abroad.
The Tribunal held that foreign salary income remitted legally through banking channels cannot be taxed in India and that the tax department cannot invoke Section 69 (unexplained investment) when a clear and complete fund trail exists.
🔹 Background: Who is the taxpayer?
Rajnish Ostwal is an NRI who lived and worked in Dubai since 2001, earning a stable monthly salary of AED 24,500 as a General Manager with a UAE company. He returned to India only in 2021.
During FY 2015–16, he purchased a residential property in Mumbai.
- Total property value: ₹3.25 crore
- Amount paid in the relevant year: ₹2 crore
- Balance paid later
Ostwal had no Indian income during the year and therefore had not filed a return in India. The tax department reopened the case after noticing the ₹2 crore investment.
🔹 Why the Tax Department Made the Addition
The Assessing Officer invoked Section 69, claiming the ₹2 crore investment was “unexplained.”
They questioned:
- Authenticity of the NRI’s Dubai employment
- Validity of foreign bank statements
- Whether the money remitted to India was genuinely earned abroad
- The lack of a tax return filed in India
Despite receiving detailed documentation, the Assessing Officer and later the Dispute Resolution Panel (DRP) brushed aside the evidence.
🔹 What Evidence the NRI Provided
The assessee produced a complete and contemporaneous money trail, including:
Dubai Side (source of funds):
- RAK Bank statements
- Withdrawal proof of AED 12,00,000
- Salary records
- UAE residence visa
- Employer validation via Ministry of Labour website
- Employment contract
India Side (incoming funds):
- Authorised Dealer Certificates for remittances (via regulated channels)
- NRE account statements showing ₹2,00,52,630 credited
- Property purchase documents
- Proof of TDS @1% deducted on property payment
The remittances matched exactly with the withdrawals made abroad.
🔹 What the Tribunal Said
The Tribunal strongly rejected the tax department’s approach, observing:
1. Foreign salary is NOT taxable in India for NRIs
Under Section 5(2), NRIs are taxed only on income received or earned in India. Salary earned in Dubai cannot be taxed here.
2. Section 69 cannot override this rule
If income is not taxable under NRI provisions, the department cannot indirectly tax it as “unexplained investment.”
3. The fund trail was complete and credible
The ITAT noted that every dirham withdrawn abroad matched remittances into India, which then matched property payments.
There was no contrary evidence by the department—only speculation.
4. Authorities failed to conduct proper verification
The tribunal criticised tax officers for doubting documents without conducting any independent verification through available channels (including foreign verification through Section 133(6)).
Final Verdict:
The entire ₹2 crore addition was deleted.
🔹 Why This Matters for NRIs
This ruling offers practical guidance:
✔ Foreign earnings remitted legally are safe from tax scrutiny
As long as money comes through authorised channels and the trail is clear.
✔ Maintain all salary slips, bank records, remittance proofs
These become crucial during scrutiny.
✔ Property purchases using NRE funds should be backed by clean banking entries
✔ Tax authorities cannot demand tax on foreign income
Nor can they call it “unexplained” without evidence.
This ruling reinforces the principle that NRIs should not face unnecessary tax additions merely for investing their own foreign savings in India.
