NRI Property Sellers Face TDS Delays; Why Budget 2026 Must Simplify Tax Rules

The current tax regulations surrounding the sale of property in India are quite complex, particularly for Non-Resident Indians (NRIs). According to a Deloitte pre-budget report, between 12.5 percent and 31.2 percent of an NRI property seller’s funds can be stuck with the tax department. This blockage restricts their ability to reinvest or take advantage of tax-saving instruments. Therefore, Budget 2026 should aim to simplify TDS compliance for home buyers when the seller is an NRI.

The existing rules state that home buyers must withhold 1 percent of the purchase value as Tax Deducted at Source (TDS) if the property value is Rs 50 lakh or more. The TDS deposit process is straightforward and convenient if the seller is a resident, using the challan-cum-statement in Form 26QB. However, for NRI sellers, the process is more cumbersome. Divya Baweja, a partner at Deloitte India, highlights in the pre-budget recommendations booklet that for NRI sellers, taxes are withheld at a higher rate, and the buyer must also obtain a Tax Deduction and Collection Account Number (TAN), deposit the tax deducted, and file e-TDS returns.

Baweja explains, “This lengthy compliance creates challenges for the buyer to purchase properties from non-residents and simultaneously creates a tax burden on the seller, who may have no tax liability in India.” The process of obtaining a no-tax deduction certificate from the tax department is long and tedious, often leading to missed opportunities to sell the asset.

CA Dr. Suresh Surana mentions that in the case of NRI property sellers, the transaction falls outside the scope of Section 194-IA and instead attracts taxes under Section 195. This section mandates the deduction of tax at rates applicable to the non-resident’s applicable income tax rate. Surana notes that 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 further points out that the buyer must obtain a TAN, deposit the tax deducted, and file quarterly e-TDS returns, significantly increasing the compliance burden. The issue highlights practical challenges in the existing tax withholding framework for property transactions involving NRI sellers. While Section 195 is designed to safeguard tax collection on income accruing to non-residents, the associated compliance requirements can become procedurally demanding for individual buyers and may result in higher upfront tax withholding for non-resident sellers compared to resident sellers.

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. However, transaction timelines and procedural complexities can sometimes limit the practical effectiveness of these measures.

Baweja emphasizes that this lengthy process puts a significant compliance burden on buyers. As the purchase and sale of property are not recurring transactions, getting a TAN just for this purpose can result in more inactive TANs later on. The lack of information or inaccurate confirmations from the seller can create compliance risks for buyers. 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 suggests 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 recommends easing the TDS process applicable for cases where the seller is an NRI by introducing challan-cum-statements similar to those for resident sellers.

In cases where a property is purchased from a non-resident seller, the buyer must comply with the withholding provisions of Section 195. 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.

To obtain such relief, the non-resident seller 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. 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).

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. 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.