Why taxing NRI property transactions deserve attention in the upcoming Budget

Buying a home is often celebrated as one of life’s most reassuring milestones. Yet, when the seller is a non-resident Indian (NRI), this otherwise joyous transaction is overshadowed by a maze of tax compliances that leave many buyers anxious and hesitant. What should ideally be a simple deduction and deposit of tax, transforms into a complex administrative exercise involving additional registrations, filling out multiple forms, and significant delays in fund flow. In an economy that prides itself on ease of doing business, there is sharp disparity between resident and non-resident property transactions which demands urgent correction.

The contrast is striking. When a resident buyer purchases property worth ₹50 lakh or more from a resident seller, the law mandates a modest 1% TDS under Section 194-IA of the Income-tax Act. The process is refreshingly straightforward: the buyer uses only their PAN, deposits tax through a single challan-cum-statement in Form 26QB, and issues Form 16B. No separate tax registration, no quarterly filings, and no procedural intimidation. Introduced in 2013, this framework was designed to ensure tax collection without turning ordinary homebuyers into accidental compliance specialists.

However, when the seller is an NRI, this simplicity evaporates. The transaction falls under Section 195, where the buyer must first obtain a Tax Deduction and Collection Account Number (TAN), despite property purchase being a one-time affair for most. Thereafter, a separate e-filing account must be created on the Income tax e-filing portal using the new TAN of the buyer. Such TAN account must then be validated through the buyer’s PAN login and thereafter tax deducted, at substantially higher rates, must be deposited using the TAN, followed by filing a quarterly e-TDS returns in Form 27Q and issuance of Form 16A by creating another login on the Traces Website (TDS Reconciliation Analysis and Correction Enabling System). What is effortless for resident-to-resident transactions becomes layered, technical, and unforgiving when an NRI is involved.


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A compelling reform Budget 2026 can address in this respect is to extend the resident-style challan-cum-statement framework to NRI property transactions as well. Allowing buyers to deposit TDS using their PAN through a single integrated Form, without mandating TAN registration and quarterly filings, would significantly reduce compliance friction while fully preserving revenue collection. While this would ease compliance for buyers, sellers face a different set of challenges that go beyond paperwork.

On the seller’s side, the issue is not of compliance but liquidity. Recent policy changes have reduced the rate structure but not the underlying cash-flow challenge. Effective 23 July 2024, the base TDS rate on long-term capital gains for NRI property sales has been reduced from 20% to 12.5%, plus surcharge and cess. While this rationalisation is welcome, the fundamental issue remains; tax continues to be deducted on the gross transaction value rather than the actual capital gain. Consequently, a significant portion of the sale proceeds, in the range of 13% to 15%, is withheld upfront even when the true tax liability is materially lower.

In other words, while capital-gains-based withholding is legally possible through a lower or nil TDS certificate under Section 197, its real-world effectiveness is constrained by procedural uncertainty. Buyers, naturally risk-averse, hesitate to rely on estimated computations without a formally issued certificate. A 2014 CBDT instruction requires that officers decide on Section 197 applications within 30 days. In practice, although many applications are processed within this timeframe, the possibility of rejection often initiates another 30-day cycle, extending the total processing period. Shortening the statutory timeline to 7 days would simplify the procedure, reduce repeated delays, and safeguard sellers’ cash flow, especially since most applications are now handled online.

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Also for most NRI sellers, refund of excess tax becomes available only after filing their income-tax return, often well into the next financial year.

This is where real hardship surfaces. Funds earmarked for reinvestment, loan closure, or repatriation, remain blocked for months. Transactions slow down as sellers struggle with disrupted cash flows and buyers grow wary of procedural exposure. The present framework, though well-intentioned from a revenue-protection standpoint, ends up restraining genuine property transactions and eroding confidence on both sides.

Introducing a mandatory reduced statutory processing timeline of 5 to 7 working days for lower TDS certificates in the upcoming Budget could address this hardship. If the application is not disposed off within this prescribed period, a provisional lower deduction approval could be triggered based on basic capital-gains parameters. This would ensure that tax on genuine gains is protected while preventing disproportionate capital lock-in due to administrative inertia.

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Together, these reforms i.e. a single PAN-based challan-cum-statement system for buyers and shorter time-bound certainty for lower TDS certificates for sellers, would restore balance to a regime that currently leans too heavily on precaution at the cost of liquidity. They would uphold the integrity of tax collection while ensuring that genuine property transactions are not paralysed by avoidable process inefficiencies.

Tax policy must evolve with the realities of modern mobility and cross-border ownership. The seller may live overseas, but the buyer operates within India’s domestic compliance ecosystem and deserves a system that is firm yet fair. Simplifying TDS for NRI property transactions is no longer a matter of convenience; it is a structural correction long overdue.

The author is Executive Director, Deloitte India