NRI property sellers face significantly different tax rules compared to resident Indian sellers. According to reports from The Economic Times, NRI sellers have no minimum amount threshold for TDS deduction, unlike resident sellers who receive a ₹50 lakh exemption limit before TDS applies. Property sales by NRIs typically attract TDS of 1% under Section 195, but the actual rate can be much higher depending on capital gains classification. Long-term capital gains are subject to TDS at 12.5% plus surcharge and cess, while short-term capital gains are taxed at the NRI seller's income-tax slab rate with applicable surcharge and cess. As explained by Chartered Accountant Suresh Surana, the classification depends on the sale duration - sales after two years create long-term capital gains, while sales within two years create short-term capital gains. The indexation benefit, which previously let sellers adjust their purchase cost for inflation before calculating long-term gains, was removed alongside the shift to the flat 12.5% rate for transfers on or after July 23, 2024.
TAN (Tax Deduction and Collection Account Number) acquisition is mandatory for NRI property purchases until September 30, 2026. As reported by The Economic Times, buyers must obtain a TAN before completing the transaction, with the current process applying until September 30, 2026. Buyers must file Form 144 under the Income-tax Rules, 2026, which matches Form 27Q under the Income-tax Rules, 1962. Many state sub-registrar offices require proof of TDS payment during registration, including TDS certificates for lower or zero deduction approvals or TDS challans for full deduction cases. According to Neeraj Agarwala, Senior Partner at Nangia & Co LLP, officials may ask for both documents - TDS certificates for lower or zero deduction approvals and TDS challans for full deduction cases. Without proper documentation, registrars may refuse property registration. From October 1, 2026, eligible resident individual and HUF buyers can use PAN instead of TAN for the specified NRI property TDS process, while the underlying TDS obligation remains. However, earlier sales must still follow the existing TAN process until the change takes effect. The difficulty lies in the compliance structure designed for regular tax deductors such as employers and businesses, where a buyer purchasing a house may have only a one-time TDS obligation, yet still has to apply for a TAN, wait for its allotment and file the required quarterly return.
Capital gains tax and TDS deduction are not the same thing, creating significant financial implications for NRI sellers. As reported by The Economic Times, TDS is deducted on the full sale consideration by default unless a lower-deduction certificate is obtained, potentially resulting in ₹13-15 lakh being locked up with the tax department before the actual tax liability is calculated. For long-term gains (property held over 24 months), the effective tax rate typically works out to 13-15% including surcharge and cess, while short-term gains are added to the seller's other Indian income and taxed at applicable slab rates. Excess TDS can generally be claimed back through the NRI's ITR filing, with the refund process requiring careful documentation and verification. For example, on a ₹2 crore sale, this could mean ₹25 lakh being withheld even if the seller's actual capital gain is much lower. Meaningful compliance changes are arriving this year, with sellers advised to apply for lower or nil TDS deduction certificates before the sale using Form 13 on the income tax efiling portal to avoid unnecessary tax deductions.
Budget 2026 introduced significant changes to TAN requirements for NRI property purchases. According to The Economic Times reports, the Finance Act, 2026 amended Section 397(1)(c) of the Income-tax Act, 2025 to remove TAN requirements for certain property purchases. From October 1, 2026, resident individuals and Hindu Undivided Families can use their PAN instead of obtaining a separate TAN for NRI property purchases, similar to the mechanism already used for resident-to-resident transactions. CA Parag Jain, Tax Head at 1 Finance, confirmed that the Finance Bill 2026 amends Section 397(1)(c) of the Income Tax Act, 2025 to exempt resident individuals and HUF buyers from obtaining a TAN when purchasing immovable property from a non-resident seller. However, the relief does not extend to companies, firms or LLPs buying property from an NRI, which will continue to require a TAN. The tax rates and liability remain unchanged - TDS applies from the first rupee for NRI transactions, unlike the ₹50 lakh threshold for resident sellers. For a ₹30 lakh property bought from an NRI, TDS applies, whereas the same property bought from a resident seller would not attract TDS if it remains below the applicable ₹50 lakh threshold. Amit Prakash, CBO at Urban Money, noted that from October 1, resident buyers purchasing property from NRI sellers will be able to deposit TDS through a PAN-based challan.
NRIs face significant challenges in repatriating property sale proceeds due to India's taxation framework and international treaties. According to The Economic Times, property sale proceeds are typically credited to the NRO account rather than an NRE account since they originate from an Indian asset. From there, NRIs can repatriate up to USD 1 million per financial year (inclusive of other eligible remittances), subject to submitting Form 15CA and where required, Form 15CB certified by a chartered accountant. India's Double Taxation Avoidance Agreements with over 90 countries typically allow NRIs to claim foreign tax credit abroad for taxes already paid in India, preventing double taxation on the same gain. The thing that confuses sellers is that TDS deducted at sale is not the same as the capital-gains tax owed, creating opportunities for tax optimization through proper planning and documentation. NRIs should understand the mechanics of NRO-to-NRE transfers separately since these have distinct documentation requirements from the property sale itself. For transactions involving a lower deduction certificate, Jain recommended starting the process six to eight weeks before the target registration date, as the certificate can take several weeks and starting only a fortnight before registration may leave insufficient time.
