Budget 2026: NRI Property TDS Rules Simplified, PAN Replaces TAN

A Major Compliance Hurdle Removed

In a significant move to simplify tax compliance, Union Finance Minister Nirmala Sitharaman, in the Union Budget 2026, announced a major change in the rules for Tax Deducted at Source (TDS) on the sale of immovable property by Non-Resident Indians (NRIs). The proposal eliminates the mandatory requirement for resident buyers to obtain a Tax Deduction and Collection Account Number (TAN) for such transactions. Instead, buyers can now deduct and deposit the TDS using their own Permanent Account Number (PAN).

This reform addresses a long-standing procedural irritant that often caused significant delays and administrative burdens for individuals purchasing property from NRIs. The change is expected to make transactions smoother, faster, and more efficient for both parties involved.

The Problem with the Old System

Previously, the process for deducting TDS on property purchased from an NRI was markedly different and more complex than for a transaction with a resident seller. Under Section 195 of the Income Tax Act, when a resident bought property from an NRI, they were required to:

1. Obtain a TAN: This was a mandatory step, even if it was a one-time transaction. Applying for a TAN involved a separate application process and added an extra layer of compliance.
2. Deduct TDS at Higher Rates: TDS rates for NRI property sales are significantly higher, ranging from 12.5% to over 30% on the entire sale consideration, not just the capital gains.
3. File e-TDS Returns: The buyer had to file quarterly e-TDS returns using Form 27Q, a compliance requirement not applicable in resident transactions.

This complex procedure often discouraged potential buyers or led to errors and delays, creating a high compliance burden. As noted by tax experts, obtaining a TAN for a single transaction resulted in a large number of inactive TANs, adding to the administrative load for both taxpayers and the tax department.

The Budget 2026 Solution: Simplicity and Parity

The new proposal, effective from April 1, 2026, aligns the process for NRI property sales with that of resident sellers under Section 194-IA. By allowing the use of a PAN-based challan, the government has streamlined the entire operation. This means the buyer no longer needs to go through the hassle of TAN registration and subsequent e-TDS filings.

Raheel Patel, Partner at Gandhi Law Associates, highlighted the practical benefit, stating, "By allowing TDS on NRI property sales to be deposited using the buyer’s PAN instead of forcing a one-time TAN registration, the Finance Minister has removed a purely procedural irritant that caused delays and technical defaults without adding any real compliance value."

Key Changes at a Glance

To better understand the impact, here is a comparison of the TDS compliance process before and after the Budget 2026 announcement.

Feature	Pre-Budget 2026 Rule (Sale by NRI)	Post-Budget 2026 Rule (Sale by NRI)
Buyer's Identifier	Tax Deduction Account Number (TAN)	Permanent Account Number (PAN)
Compliance Process	Obtain TAN, Deposit TDS, File quarterly e-TDS Return (Form 27Q)	Deposit TDS directly via PAN-based challan
Administrative Burden	High, especially for one-time individual buyers	Low, aligned with resident seller process
Transaction Speed	Prone to delays due to TAN application and filing	Faster and more efficient closure

Impact on the Real Estate Market

This simplification is a positive step for the real estate sector. It improves transaction efficiency by removing a key procedural bottleneck. For NRI sellers, this means that deals are less likely to be stalled due to compliance complexities faced by the buyer. This can reduce holding costs and ease cash-flow pressures.

Alay Razvi, Managing Partner at Accord Juris, commented, "From a market perspective, this improves transaction efficiency, reduces holding costs, and eases cash-flow pressures for non-resident sellers. More importantly, it reflects a shift toward practical tax administration."

While this change does not alter the substantive TDS rates applicable to NRIs, it significantly lowers the barrier to entry for resident individuals looking to purchase property from them. The move is seen as a rationalisation of the compliance framework that maintains tax oversight while reducing unnecessary friction.

Part of a Broader Simplification Agenda

This TDS rule change is consistent with the government's broader agenda of simplifying tax laws and improving the ease of doing business. The Union Budget 2026 also introduced other measures aimed at easing compliance for NRIs and international transactions, including:

• Reduced TCS Rates: The Tax Collected at Source (TCS) on overseas tour packages was reduced to 2%, and for education and medical remittances under the Liberalised Remittance Scheme (LRS), it was cut from 5% to 2%.
• Foreign Asset Disclosure Scheme: A one-time, six-month window was announced for small taxpayers like students and relocated NRIs to declare foreign assets and regularise their compliance.

Conclusion

The decision to allow PAN-based TDS deposits for NRI property sales is a welcome and practical reform. It directly addresses a long-standing pain point for taxpayers and streamlines a cumbersome process. By bringing parity between transactions involving resident and non-resident sellers, the government has enhanced the ease of compliance, which is likely to have a positive, albeit indirect, impact on real estate transactions involving NRIs. The focus remains on simplifying procedures without diluting the integrity of the tax collection framework.