The current tax regulations around sale of property are quite complex, leading to significant fund blockage for non-resident Indians (NRIs) who are selling property. A Deloitte pre-budget report indicates that, between 12.5 percent and 31.2 percent of an NRI property seller’s funds can be stuck with the tax department, restricting their ability to reinvest or take advantage of tax-saving instruments.
Therefore, Budget 2026 should aim to make TDS compliance easier for home buyers when the seller is an NRI.
Current property sale tax compliance rules for NRI sellers
The existing rules state that home buyers must withhold 1 percent of the purchase value as Tax Deducted at Source (TDS), where the property value is Rs 50 lakh or more. The TDS deposit process is simple and convenient if the seller is a resident (using the challan-cum-statement in Form no. 26QB).
Divya Baweja, partner, Deloitte India said in the pre-budget recommendations booklet that for NRI sellers, taxes are withheld at a higher rate, and the buyer also has to obtain a TAN, deposit the tax deducted and file e-TDS returns.
Baweja says: “This long compliance creates challenges for the buyer to buy properties from non-residents, and at the same time creates a tax burden on the seller as well, who may have no tax liability in India.”
Baweja points out that the process of obtaining a no-tax deduction certificate from the tax department is long and tedious, and at times might result in missing out on the opportunity to sell the asset.
CA Dr Suresh Surana mentions that in case of NRI property sellers, the transaction falls outside the scope of Section 194-IA and instead attracts taxes under Section 195, which mandates deduction of tax at rates applicable to the non-resident’s applicable income tax rate.
According to Surana, in these situations, TDS must be deducted from the total consideration (unless a lower or nil deduction certificate is obtained), at rates linked to capital gains tax, including any applicable surcharge and cess.
Surana says: “Further, the buyer must obtain a TAN, deposit the tax deducted, and file quarterly e-TDS returns, significantly increasing the compliance burden.”
Surana points out that the issue in hand showcases some practical challenges in the existing tax withholding framework for property transactions involving NRI sellers.
Surana says: “While Section 195 is designed to safeguard tax collection on income accruing to non-residents, the associated compliance requirements may become procedurally demanding for individual buyers and may result in higher upfront tax withholding for non-resident sellers vis-à-vis resident sellers.”
Does the existing tax law provide any relief?
According to Surana, the law does provide relief mechanisms, such as applications for lower or nil TDS deduction certificates under Section 197, which seek to balance revenue protection with taxpayer equity.
Surana says: “However, transaction timelines and procedural complexities can sometimes limit the practical effectiveness of these measures.”
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Why Budget 2026 must fix the complicated tax rules for NRI property sellers
Baweja says this lengthy process puts a significant compliance burden on the buyers. As the purchase and sale of the property is not a recurring transaction, getting a TAN just for this purpose alone could result in having more inactive TANs later on. Lack of information or inaccurate confirmations from the seller creates compliance risk for buyers.
Baweja says: “Between 12.5 percent and 31.2 percent of the seller’s funds often remain blocked with the tax department, limiting the seller’s ability to reinvest or take advantage of tax-saving instruments.”
Surana says that there may be scope for procedural simplification, particularly for genuine transactions, to ease compliance without diluting the underlying policy intent of the law.
Deloitte recommendation
The TDS process applicable for cases where the seller is an NRI may be eased by introducing these challan-cum-statements similar to those for resident sellers.
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How can NRI property sellers obtain No TDS certificate?
Surana says that in cases where a property is purchased from a non-resident seller, the buyer has to comply with the withholding provisions of Section 195.
Surana says: “Since tax is required to be deducted at rates applicable to non-residents, buyers often seek a nil or lower tax deduction certificate from the Seller (to be obtained from tax authorities) to avoid excessive withholding on the gross sale consideration.”
In order to obtain such relief, the non-resident seller (and not the buyer) must apply electronically for a lower or nil deduction certificate under Section 197, read with Rule 28 of the Income-tax Rules, 1962, by filing Form 13 on the income-tax e-filing portal.
Surana says: “The application requires detailed information such as the computation of capital gains, cost of acquisition, indexation details, proposed sale consideration, and details of applicable exemptions (for example, under Sections 54 or 54F, if eligible).”
Surana says that upon examination, the Assessing Officer may issue a certificate specifying the applicable lower or nil rate of tax to be deducted, which the buyer can rely upon while making the payment.
As the transaction falls outside the simplified framework of Section 194-IA, the buyer is mandatorily required to obtain a Tax Deduction and Collection Account Number (TAN) under Section 203A.
One can apply for TAN online through the NSDL portal by filing Form 49B.
Surana says: “Once allotted, the buyer must deduct tax at the applicable rate (or the rate specified in the Section 197 certificate), deposit the tax using the prescribed challan, and file quarterly e-TDS returns in Form 27Q.”
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