TDS deducted from payment to NRI

To determine the taxability of penalty amount received from the builder, you will have to answer one question, whether this purchase of commercial property was for investment purpose or

for the purpose of trading in property. I presume that this was purchased for investment purposes to derive rental income from leasing of the said property. In such a case the penalty amount received from the builder is a capital receipt and not liable to tax as income and you may claim exemption from incom tax and receive refurn. But if you are engaged in business of buying and selling of properties then such amount received is business income liable to tax.

The penalty that has been credited to your account is a capital receipt and does not fall with the ambit of income or the income from the other sources ( section 56 ) .

So you can claim the refund of the above TDS .

The penalty paid to you is the capital receipt and would be adjusted with your cost of acquisition of the capital assets .

In the present case the penalty credited to your account will reduce the cost of acquisition. This will be a capital receipt and will not form part of your taxable income.

You can claim the TDS back from the govt at the time of filing your tax returns.