Property TDS 2026: How PAN-Based Challan Replaces TAN for NRI Seller Transactions

Buying a flat from your NRI cousin used to mean a compliance marathon: obtain a TAN you would never use again, calculate TDS at 20-30%, deposit via e-challan with the TAN, file quarterly Form 27Q returns, and issue Form 16A. Most individual buyers found this process confusing, time-consuming, and error-prone. The Finance Act 2026 has eliminated the TAN requirement. From 01 October 2026, resident buyers purchasing property from NRI sellers can deposit TDS using a simple PAN-based challan - the same mechanism already used for resident-to-resident property transactions.

This guide explains the old vs new process, the unchanged TDS rates, the new forms under IT Rules 2026, and how to complete the transaction correctly step by step.

What Is Property TDS for NRI Sellers and Why Was the Process Simplified?

Property TDS on NRI sales is the tax deducted at source by the resident buyer under Section 195 of the Income Tax Act, 1961 (corresponding provision under IT Act 2025) when purchasing immovable property from a non-resident Indian. Unlike Section 194IA (which applies to resident sellers at a flat 1%), Section 195 requires TDS based on the NRI’s capital gains classification - 12.5% for long-term gains and slab rates for short-term gains.

The TAN requirement was a legacy compliance burden - buyers had to register for a Tax Deduction and Collection Account Number solely for this one transaction. This caused delays in registration, sale deed execution, and TDS deposit, often leading to penalties for honest buyers who missed technical steps.

For NRI property sellers planning their ITR for property sale, the simplified buyer-side process means faster TDS deposit, quicker Form 26AS credit, and smoother repatriation of sale proceeds.

Key Terms You Should Know

• Section 195: TDS on payments to non-residents. Governs TDS on NRI property sales. TDS rate depends on capital gains classification (LTCG or STCG). Corresponding provision under IT Act 2025.
• Section 194IA: TDS on purchase of immovable property from resident sellers. Rate: 1% of sale consideration or stamp duty value (whichever is higher) if value exceeds Rs 50 lakh. Already PAN-based.
• TAN (Tax Deduction and Collection Account Number): A 10-digit alphanumeric number required for deducting and depositing TDS. Previously mandatory for NRI property TDS. Now removed for this purpose.
• PAN-Based Challan: A TDS deposit mechanism using the buyer’s PAN instead of TAN. Already used for Section 194IA (resident seller) transactions via Form 26QB. Now extended to NRI seller transactions.
• Form 26QB: Challan-cum-statement for TDS on property purchase from resident sellers. Filed online on the income tax e-Filing portal using buyer’s PAN.
• Form 27Q → Form 140: Quarterly TDS return for payments to non-residents. Under IT Rules 2026, Form 27Q is replaced by Form 140. However, with PAN-based deposit, the filing requirement may be simplified.
• Form 16A → Form 131: TDS certificate issued to the deductee. Under IT Rules 2026, Form 16A becomes Form 131. For property TDS, Form 16B continues for resident sellers; the NRI equivalent will follow the new form structure.
• Section 197 (Lower Deduction Certificate): NRI sellers can apply using Form 13 to get a certificate for lower or nil TDS if their actual capital gains tax liability is less than the statutory TDS rate.

Who Is Affected by the PAN-Based TDS Change?

This change benefits both buyers and NRI sellers in property transactions.

• Resident Indian buyers purchasing property from NRI sellers - no longer need to apply for TAN, saving 7-15 days of processing time
• NRI sellers of residential or commercial property in India - faster TDS deposit means quicker Form 26AS credit and smoother repatriation
• Real estate agents and lawyers facilitating NRI property deals - reduced documentation and compliance friction
• First-time property buyers unfamiliar with TAN registration - the PAN-based process is identical to buying from a resident seller
• NRIs applying for lower TDS certificates under Section 197 - the simplified buyer process makes execution faster after the certificate is issued

For understanding how capital gains on property are computed under the new regime, refer to our capital gains rules guide.

Old Process vs New Process: Complete Comparison

Note: The TDS rates on NRI property sales are unchanged by this reform. The change is purely procedural - how TDS is deposited, not how much. The LTCG rate of 12.5% (post Finance Act 2024) and STCG at slab rates remain as before. Surcharge and cess continue to apply.

How to Deposit Property TDS for NRI Seller Under the New Process: Step-by-Step

1. Verify the NRI seller’s residential status and PAN. Confirm the seller is a non-resident for income tax purposes. Obtain the seller’s PAN - if PAN is not provided, TDS must be deducted at 20% (the higher rate applies).
2. Determine the capital gains classification. If the NRI held the property for more than 24 months, the gain is LTCG (TDS at 12.5% + surcharge + cess). If held for 24 months or less, it is STCG (TDS at applicable slab rates + surcharge + cess).
3. Check if the NRI has a lower deduction certificate. If the NRI has obtained a certificate under Section 197 (Form 13) from the Assessing Officer, TDS must be deducted at the lower rate specified in the certificate. This can reduce TDS significantly if actual capital gains are lower than the sale consideration.
4. Calculate the TDS amount. Apply the applicable rate to the sale consideration (not just the capital gains). For a Rs 1.5 crore property with LTCG classification: TDS = Rs 1.5 crore × 12.5% = Rs 18.75 lakh (before surcharge and cess).
5. Login to the Income Tax e-Filing portal and file the PAN-based challan. Navigate to e-Pay Tax → select the NRI property TDS challan (expected to be similar to Form 26QB). Enter buyer’s PAN, seller’s PAN, property details, TDS amount, and payment details.
6. Make payment online. Pay the TDS amount through net banking, debit card, or any approved payment method. A challan receipt is generated immediately upon successful payment.
7. Download the TDS certificate from TRACES. After 10-15 days, the TDS certificate (expected Form 131 equivalent or Form 16B equivalent) becomes available on the TRACES portal. Download and provide it to the NRI seller as proof of TDS deduction and deposit.

Documents Needed for NRI Property TDS Deposit

• Buyer’s PAN card (no TAN required from 01 October 2026)
• NRI seller’s PAN - mandatory; TDS at 20% if PAN not provided
• Sale deed or agreement of sale with property details, sale consideration, and execution date
• Stamp duty valuation certificate from the sub-registrar
• Lower deduction certificate (Form 13) - if the NRI has obtained one under Section 197
• Capital gains computation provided by the NRI seller or their CA - to determine LTCG vs STCG
• Holding period proof (date of original purchase by the NRI) - to classify as LTCG (>24 months) or STCG
• FEMA repatriation documents - the NRI will need TDS certificate for CA certificate under FEMA to repatriate sale proceeds
• Challan receipt from e-Filing portal after TDS deposit

NRI Property TDS Rates for FY 2026-27: Complete Rate Card

Note: The 12.5% LTCG rate was introduced by Finance Act 2024 (replacing the earlier 20% with indexation). For NRI property sales, TDS is calculated on the full sale consideration, not just the capital gains. The NRI claims credit for TDS in their ITR and gets a refund if TDS exceeds actual tax liability.

Common Mistakes to Avoid in NRI Property TDS

Mistake 1: Deducting TDS at 1% under Section 194IA instead of Section 195 rates. Section 194IA (1% TDS) applies only to resident sellers. NRI property sales fall under Section 195 with higher rates (12.5% LTCG or slab rates STCG). Using the wrong section results in short-deduction and penalty on the buyer. Ensure correct guidance through income tax return filing services.

Mistake 2: Not obtaining the NRI’s PAN before the transaction. If the NRI seller does not provide PAN, TDS jumps to 20% under Section 206AA. This is often higher than the actual tax liability and creates a cash-flow problem for the NRI who must wait for an ITR refund.

Mistake 3: Ignoring the lower deduction certificate option. NRIs with significant capital gains exemptions (Section 54 reinvestment, Section 54EC bonds) can apply for a lower TDS certificate under Section 197 (Form 13). This can reduce TDS from 12.5% to as low as nil, saving lakhs in upfront cash outflow.

Mistake 4: Depositing TDS after the deadline. Late deposit attracts interest at 1.5% per month from the date of deduction to the date of deposit. For a Rs 18.75 lakh TDS on a Rs 1.5 crore property, one month’s delay costs Rs 28,125 in interest.

Mistake 5: Not verifying Form 26AS after deposit. The NRI seller needs TDS credit in Form 26AS for ITR filing and FEMA repatriation. If the buyer’s challan is not processed correctly, the credit may not appear. Verify within 7-10 days of deposit.

Penalties for Non-Compliance with NRI Property TDS

TDS compliance on NRI property transactions carries strict penalties.

Under Section 201 (corresponding IT Act 2025 provision), if the buyer fails to deduct TDS or deducts at a lower rate than applicable, the buyer is treated as “assessee in default.” The buyer becomes personally liable for the TDS amount plus interest.

Under Section 234E, late filing of the TDS return (previously Form 27Q) attracts a fee of Rs 200 per day, subject to a maximum of the TDS amount.

Under Section 271C, failure to deduct TDS can attract a penalty equal to the amount of TDS that should have been deducted. For a Rs 1.5 crore property with 12.5% TDS, this means a penalty of Rs 18.75 lakh.

Additionally, the property registration may be held up if the sub-registrar requires proof of TDS challan deposit. Some states now verify TDS compliance before registration, creating practical delays beyond just the tax penalty.

How NRI Property TDS Connects with FEMA Repatriation and ITR Filing

For NRI sellers, the TDS deposit triggers a chain of compliance steps. The NRI needs the TDS certificate (from the buyer) plus a CA certificate under FEMA to repatriate sale proceeds through their NRO account. With the old TAN-based system, delays in TDS deposit meant delays in the entire repatriation chain.

The PAN-based challan mechanism is expected to provide faster TDS credit in Form 26AS, which speeds up both ITR filing and FEMA compliance. NRIs filing income tax notice help cases often face issues where TDS credit is delayed or mismatched - the simplified buyer-side process reduces this risk.

If the NRI has obtained exemptions under Section 54 (reinvestment in residential property within 2 years) or Section 54EC (investment in NHAI/REC bonds within 6 months), the actual tax liability may be zero. In such cases, the lower deduction certificate under Section 197 is critical - without it, the buyer must still deduct TDS at 12.5%, and the NRI must claim a full refund through ITR.

NRI Property TDS vs Resident Property TDS: Key Differences

Key Takeaways

The Finance Act 2026 removes the TAN requirement for resident buyers purchasing property from NRI sellers. From 01 October 2026, TDS can be deposited using a PAN-based challan, aligning the NRI property TDS process with the Section 194IA mechanism used for resident sellers.

TDS rates on NRI property sales are unchanged: 12.5% for LTCG (property held >24 months) and slab rates for STCG, plus applicable surcharge and 4% cess. The reform is procedural, not substantive.

NRI sellers should proactively apply for a lower deduction certificate under Section 197 (Form 13) if they have capital gains exemptions (Section 54 or 54EC). This can reduce TDS from 12.5% to nil, avoiding a cash-flow lock-up of lakhs.

Buyers must still verify the NRI’s PAN before the transaction. If PAN is not provided, TDS increases to 20% under Section 206AA - a penalty the buyer cannot avoid.

The simplified process is expected to reduce transaction timelines by 2-4 weeks, improve Form 26AS credit speed, and ease the FEMA repatriation chain for NRI sellers.

Need Help with NRI Property Sale Tax Compliance?

Whether you are a buyer navigating the new PAN-based TDS process or an NRI seller planning your property exit with Section 54 exemptions and lower TDS certificates, the compliance requirements demand precision. From TDS calculation to FEMA repatriation, every step must align.

Explore our property sale tax filing for end-to-end assistance with NRI property TDS, capital gains computation, exemption planning, and ITR filing.

For queries, reach out at +91 945 945 6700 or WhatsApp us directly.