Will Budget 2026 ease TDS rules for NRI property sales?
What's the story
Non-resident Indians (NRIs) selling property are facing significant financial challenges due to the current tax regulations. According to a Deloitte pre-budget report, between 12.5% and 31.2% of an NRI property seller's funds can get stuck with the tax department. This not only restricts their ability to reinvest but also to take advantage of tax-saving instruments.
Existing regulations
Current tax compliance rules for NRI property sales
The existing rules mandate home buyers to withhold 1% of the purchase value as Tax Deducted at Source (TDS) when buying a property worth ₹50 lakh or more. However, this process is more complicated if the seller is an NRI. In such cases, taxes are deducted at a higher rate and buyers also have to obtain a TAN, deposit the tax deducted and file e-TDS returns.
Compliance challenges
Tax burden on NRI sellers and buyers
The long compliance process creates challenges for buyers looking to purchase properties from non-residents. It also imposes a tax burden on sellers who may not have any tax liability in India. CA Dr. Suresh Surana explains that when it comes to NRI property sellers, the transaction falls outside the scope of Section 194-IA and is taxed under Section 195 at rates applicable to the non-resident's income tax rate.
Tax deduction
TDS must be deducted on total consideration
Surana further explains that in such cases, TDS must be deducted on 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. He adds that the buyer must obtain a TAN, deposit the tax deducted and file quarterly e-TDS returns, significantly increasing their compliance burden.
Relief options
Existing tax law offers relief mechanisms
Surana points out that while the existing tax law does provide relief mechanisms, such as applications for lower or nil TDS deduction certificates under Section 197, transaction timelines and procedural complexities can sometimes limit their practical effectiveness. He says these measures are intended to balance revenue protection with taxpayer equity but may not always be effective due to compliance challenges.
Burden alleviation
Compliance burden on buyers and potential solutions
Divya Baweja, partner, Deloitte India, highlights that the lengthy process puts a significant compliance burden on buyers. She suggests that since property transactions aren't frequent, obtaining a TAN just for this purpose could lead to more inactive TANs later. Surana also says there may be scope for procedural simplification, especially for genuine transactions, to ease compliance without diluting the underlying policy intent of the law.