Buying From NRIs: TAN-Free

For years, the dream of purchasing a premium property in India often came with a significant administrative sting if the seller happened to be a Non-Resident Indian (NRI). Unlike transactions between residents—where a simple PAN-based TDS deduction sufficed—buying from an NRI traditionally catapulted the average homebuyer into the complex world of corporate-style tax compliance.

As of April 1, 2026, the Income Tax Act, 2025 has dismantled one of the most significant barriers to these transactions. The mandatory requirement for individual buyers to obtain a Tax Deduction and Collection Account Number (TAN) for NRI property purchases has been abolished.

This reform marks a shift toward "Citizen-Centric Taxation," ensuring that the onus of complex tax accounting does not fall on the shoulders of the occasional homebuyer.

1. The Legacy Burden: Why TAN Was a "Headache"

Under the old Income Tax Act of 1961, Section 195 governed payments to non-residents. While Section 194-IA allowed resident-to-resident property TDS to be filed using only a PAN (Form 26QB), any transaction involving an NRI seller fell under the purview of Section 195.

The Challenges were manifold:
Mandatory TAN: Buyers had to apply for a TAN, a process involving separate registrations and digital signature requirements.

Quarterly Filings: Having a TAN mandated the filing of quarterly TDS returns (Form 27Q). Failure to do so—even after the property deal was closed—resulted in recurring "Non-Filing" notices.

Compliance Costs: Most buyers had to hire Chartered Accountants specifically to manage the TAN-linked filings, adding ?15,000 to ?30,000 to their transaction costs.

Surrender Issues: Once the deal was over, surrendering a TAN was a bureaucratic nightmare, often taking months of correspondence with the Jurisdictional Assessing Officer.

2. The 2026 Reform: Section 402 of the New Act

The Income Tax Act, 2025 has introduced a specific carve-out for individual homebuyers under Section 402 (Withholding on Immovable Property).

The new law harmonizes the procedure for purchasing property, regardless of the residential status of the seller.

The New Rule: An individual or HUF purchasing a residential or commercial property from an NRI is now permitted to deduct and remit TDS using their Permanent Account Number (PAN) or Aadhaar.

The "Universal Form": The separate Form 27Q for NRIs has been integrated into a new, simplified Form 170 (Property Acquisition Tax Statement). This single form now covers all property-related TDS, whether the seller is a Resident, an NRI, or a Foreign Corporation.

3. Understanding the "Rate vs. Process" Distinction

It is critical for buyers to understand that while the process (TAN) has been simplified, the tax rate logic remains distinct for NRIs.

A. The Resident Rate (1%)

If the seller is a resident, the buyer continues to deduct 1% of the total consideration (provided the value exceeds ?50 Lakhs).

B. The NRI Rate (Capital Gains Linkage)

If the seller is an NRI, the buyer must still deduct tax at the rates in force (typically 20% plus applicable Surcharge and Cess for long-term gains).

Important: The relief provided by the 2025 Act is purely procedural. You no longer need a TAN to pay the tax, but you still need to ensure you are deducting the correct amount based on the NRI’s capital gains.

4. The New Workflow: How to Buy from an NRI in 2026

The TRACES 2.0 portal has introduced a dedicated "Property Cell" to facilitate these transactions. Here is the step-by-step professional workflow for a buyer:

1) Verification of Residency: Confirm the seller’s status via their Tax Residency Certificate (TRC) and the new "Residential Status Declaration" form under the 2025 Act.

2) Lower Deduction Certificate (LDC): If the NRI seller provides a certificate under Section 405 (formerly Section 197), the buyer can deduct tax at the lower rate specified in the certificate.

3) Payment via Form 170: The buyer logs into the Income Tax Portal using their own PAN. They fill out Form 170, enter the NRI's PAN, the property details, and the LDC number (if any).

4) Immediate Receipt: The system generates a BSR-Code linked receipt instantly. This receipt is now a valid document for the Sub-Registrar to proceed with the property registration.

5) Auto-Generation of Form 16B: Within 15 days, the system automatically generates the TDS Certificate (Form 16B) and sends it to the NRI seller’s digital vault.

5. Legal Implications for the Sub-Registrar

The 2025 Act has issued a direct mandate to the Inspector General of Registration (IGR) offices across states. Sub-Registrars are now prohibited from demanding a "TAN-based Challan" for NRI transactions.

Under the new National Single Window for Property (NSWP), the registration software is linked to the Income Tax Portal. Once the buyer pays the TDS via Form 170 (PAN-based), the "TDS Clearance" flag is automatically triggered in the registration system, allowing the sale deed to be executed without manual verification of TAN documents.

6. Safeguards: Avoiding the "Short Deduction" Trap

While the TAN headache is gone, the "Section 402 Liability" remains. If a buyer erroneously treats an NRI as a resident and deducts only 1% TDS, the Income Tax Department will hold the buyer responsible for the shortfall.

Professional Recommendation:Always demand a Taxation Liability Report from the NRI seller. Under the new Act, NRI sellers can obtain an "Instant Capital Gains Estimate" from the IT portal. If the seller provides this system-generated estimate, the buyer is legally protected if they deduct tax according to that amount.

7. Benefits to the NRI Seller

This reform is equally beneficial for the seller:

Faster Credit: Since the payment is PAN-linked and digital, the credit reflects in the NRI’s Financial Diary (Form 168) within 48 hours.

Simplified Refunds: If excess tax was deducted, the NRI can claim a refund in their Tax Year 2026-27 return without having to reconcile "Missing TAN" data.

Digital Transparency: The NRI receives an SMS/Email notification the moment the buyer deposits the tax, reducing the trust deficit in high-value transactions.

8. Conclusion: A Milestone in Ease of Doing Business

The removal of the TAN requirement for buying property from NRIs is a masterstroke in regulatory simplification. It recognizes that an individual buying a home should not be expected to act like a corporate tax deductor.

By merging the NRI property tax process into the standard PAN-based framework, the Income Tax Act, 2025 has effectively removed a layer of professional cost and bureaucratic anxiety. For the real estate sector, this means faster deal closures, fewer legal hurdles, and a much smoother experience for the global Indian diaspora looking to divest their assets.

Planning a purchase? Ensure your seller’s PAN is updated and "Active" on the portal. Even without a TAN, a transaction with an "Inoperative PAN" can trigger a mandatory 20% deduction rate under Section 409 of the new Act.