Selling Property in India as an NRI? Know Tax Rules and TAN Compliance

Non-Resident Indians (NRIs) selling real estate in India face a specialized tax framework distinct from domestic property sales. Governed by Section 393(2) under the restructured Income-tax Act, 2025 (formerly Section 195 of the 1961 Act), Tax Deducted at Source (TDS) for NRI property sales applies to the entire transaction value without a minimum threshold.

Resident buyers must obtain a Tax Deduction and Collection Account Number (TAN) to process these transactions until October 1, 2026, after which a Permanent Account Number (PAN) based deposit system will take effect.

TDS Rates and Capital Gains Structure

Unlike transactions involving resident sellers—where buyers deduct a flat 1% TDS on property valued above ₹50 lakh—purchases from non-resident sellers carry higher withholding requirements applied to the total sale consideration by default.

Under updated tax provisions, capital gains classification and applicable rates are structured as follows:

• Long-Term Capital Gains (LTCG): Applied to properties held for more than 24 months. The statutory base TDS rate is set at 12.5% (without indexation benefits), supplemented by applicable surcharges (capped at 15%) and a 4% Health and Education Cess.

• Short-Term Capital Gains (STCG): Applied to properties held for 24 months or less. TDS is deducted at the seller's applicable income tax slab rate (up to 30%), plus relevant surcharges and cess.

• No Exemption Threshold: Unlike resident sales, there is no ₹50 lakh minimum threshold; TDS applies starting from the first rupee of the transaction.

The TAN Requirement Shift: 2026 Transition

A primary compliance hurdle for buyers purchasing from NRI sellers has been the mandatory acquisition of a TAN.

Prior to recent statutory amendments, resident individuals purchasing property from an NRI were legally prohibited from depositing TDS using a standard PAN. Buyers had to apply for a separate TAN through official portals prior to transaction registration. Under the Finance Act framework taking effect on October 1, 2026, resident individuals and Hindu Undivided Families (HUFs) can deposit withheld tax directly using their PAN.

Reducing Excess Withholding: Form 128 (Lower Deduction Certificate)

Because statutory TDS is calculated on the total sale consideration rather than the actual capital gain, NRI sellers frequently face excess tax withholding.

To prevent liquidity lockup, NRI sellers can submit an application for a Lower or Nil TDS Certificate (Form 128 under the Income-tax Act, 2025, which replaced Form 13).

1. Filing Application: The seller submits Form 128 on the TRACES portal before transaction execution, detailing the original purchase cost, indexed adjustments (where applicable), and net capital gain.

2. Assessment: Assessing Officers verify the documented acquisition costs and compute the exact tax liability on the capital gain.

3. Issuance: The tax department issues a certificate instructing the buyer to deduct tax only on the actual gain or at a specified reduced percentage.

Official Sources

Regulatory guidelines and tax administration frameworks are established under the following official authorities:

• Income Tax Department, Government of India: Directives on Non-Resident Tax Deductions under Section 393(2) and Section 397 Amendments.

• Ministry of Finance: Statutory provisions under the Income-tax Act, 2025 and Finance Act amendments.

• TRACES (TDS Reconciliation Analysis and Correction Enabling System): Portals for lower deduction certificates (Form 128) and tax certificate issuances.

Regulatory Guidance and Expert Commentary

According to officials at the Income Tax Department, verifying the seller's tax residency status prior to agreement signing remains mandatory for all property acquisitions.

"A resident buyer purchasing property from an NRI must verify non-resident status before initiating tax deductions to ensure compliance with specialized non-resident withholding provisions," tax officials noted in public procedural guidance.

Organizers and legal representatives emphasize that sub-registrar offices across Indian states require proof of TDS payment—either via standard deposit challan or an official Lower Deduction Certificate—before registering property sale deeds.

Why It Matters: Financial Implications for Buyers and Sellers

• For NRI Sellers: Applying for a Lower Deduction Certificate prevents large sums from being locked up with tax authorities for extended periods pending annual return filings. Reinvestment exemptions under Sections 54, 54F, or 54EC can further offset capital gains liabilities.

• For Property Buyers: Failing to deduct tax at proper non-resident rates leaves the resident buyer personally liable for unpaid tax differentials, interest charges, and penalties.

• For Foreign Remittances: Following transaction completion, NRIs repatriating sale proceeds out of India must provide Form 145 (formerly Form 15CA) and Form 146 (formerly Form 15CB) chartered accountant certifications to authorized dealer banks.

Key Facts at a Glance

• No Minimum Threshold: TDS applies to all property sales by NRIs regardless of total transaction value.

• Full Value Withholding: Standard TDS is calculated on total sale consideration unless a Lower Deduction Certificate is obtained.

• TAN Transition: Buyers require a TAN for transactions through September 30, 2026; PAN-based filing takes effect October 1, 2026.

• Base Tax Rate: Long-term capital gains carry a 12.5% base statutory TDS rate plus applicable surcharge and 4% cess.

Frequently Asked Questions

Does a resident buyer need a TAN to buy property from an NRI?

Yes, until September 30, 2026, resident buyers must obtain a TAN. Beginning October 1, 2026, individual buyers can deposit TDS using their regular PAN.

What is the standard TDS rate on property sold by an NRI?

For long-term capital gains (held over 24 months), the base TDS rate is 12.5% plus surcharge and cess. Short-term gains are taxed at applicable income tax slab rates plus surcharge and cess.

Can an NRI seller reduce the high upfront TDS amount?

Yes. NRI sellers can apply online for a Lower Deduction Certificate under Form 128 prior to closing, allowing buyers to deduct tax on actual profits rather than the total sale value.

What happens if the buyer deducts only 1% TDS on an NRI property transaction?

Deducting 1% (the resident rate) on an NRI sale constitutes short-deduction under non-resident withholding provisions. The buyer remains liable to pay the balance tax amount along with interest penalties.

Sources: Income Tax Department Portal, Ministry of Finance Releases, TRACES System Operations