The Indian real estate market has seen a significant influx of investments from Non-Resident Indians (NRIs) over the past decades. While these transactions often promise excellent returns, the process of buying property from an NRI has traditionally been complicated due to tax regulations. One of the major hurdles was the requirement for the buyer to obtain a Tax Deduction and Collection Account Number (TAN) in order to deduct and deposit Tax Deducted at Source (TDS).
However, the government has recently simplified the process: buyers can now complete TDS compliance using their Permanent Account Number (PAN). This change streamlines the process, reduces paperwork, and makes NRI property transactions faster and more transparent.
What Changed: TAN is No Longer Required
Earlier, when purchasing property from an NRI, buyers were required to:
- Apply for a TAN specifically for TDS deductions.
- Deduct TDS from the purchase price.
- Deposit TDS with the government using TAN.
- Issue a TDS certificate (Form 16B) to the NRI seller.
This multi-step process often caused delays and administrative headaches, especially for first-time buyers.
Now, under the new rules:
- Buyers no longer need to obtain a TAN.
- TDS can be deducted and deposited using the buyer’s PAN.
- All TDS payments are done through Form 26QB, which is directly linked to the PAN.
This change simplifies compliance, reduces paperwork, and ensures faster transactions.
Why This Change Matters
- Simplified Compliance: Buyers can now use their existing PAN for TDS deposits, eliminating the need for an extra TAN application.
- Faster Transactions: Without the need for a TAN, payments and TDS deposits can be completed quickly.
- Reduced Errors: Using PAN ensures all TDS records are linked directly to the buyer, minimizing mistakes in filing and reporting.
- Transparency: PAN-based TDS makes it easier for both buyer and seller to track deductions and payments.
Step-by-Step Guide to TDS on NRI Property Purchases
Here’s how buyers can comply with the TDS rules under the new system:
Step 1: Determine the TDS Rate
- Long-term capital gains (LTCG): 20% + applicable surcharge & cess (if the property is held for more than 24 months).
- Short-term capital gains (STCG): 30% + applicable surcharge & cess (if the property is held for less than 24 months).
These rates are applicable for property purchased from NRI sellers.
Step 2: Deduct TDS at the Time of Payment
TDS must be deducted from the payment to the seller at the time of transferring funds. For partial payments or installments, TDS should be calculated and deducted for each transaction.
Step 3: Deposit TDS Using Form 26QB
- Use the buyer’s PAN to deposit TDS through Form 26QB, an e-payment challan provided by the Income Tax Department.
- Form 26QB allows the buyer to deposit TDS online directly into the government’s account.
Step 4: Issue TDS Certificate (Form 16B)
Once TDS is deposited, the buyer must issue a TDS certificate (Form 16B) to the NRI seller. This certificate acts as proof of tax deduction and ensures the seller can claim the credit while filing their income tax returns.
Example Scenario
Suppose a buyer purchases a property from an NRI for ₹1 crore:
- LTCG TDS rate: 20%
- TDS to be deducted: ₹1 crore × 20% = ₹20 lakh
- Payment to the seller: ₹80 lakh
- TDS deposited using Form 26QB with the buyer’s PAN: ₹20 lakh
- TDS certificate (Form 16B) issued to the NRI seller
Previously, the buyer would have needed a TAN to deposit this amount. Now, the PAN is sufficient, saving time and effort.
Common Buyer Scenarios
- Part Payments: TDS should be deducted on every installment paid to the NRI seller.
- Joint Ownership: Each buyer must deduct TDS proportionate to their share in the property.
- Inherited Property: If the NRI seller inherited the property, LTCG calculation may differ; buyers should consult a tax advisor.
- Lower TDS Certificate: The NRI seller can apply for a lower TDS certificate from the Income Tax Department under Section 197, and buyers must deduct TDS according to this certificate.
Key Tips for Buyers
- Verify the NRI status of the seller before deducting TDS.
- Ensure your PAN is active and linked to a bank account for e-payments.
- Maintain proper documentation of payments, TDS deposits, and Form 16B certificates.
- Consult a tax professional for complex scenarios, like joint ownership, inheritance, or high-value transactions.
- Use the online Form 26QB portal to avoid delays or errors in TDS payment.
Why the Government Made This Change
The government’s main objectives are:
- Simplifying Tax Compliance: Reducing procedural steps makes the process easier for buyers and encourages adherence.
- Encouraging Faster Real Estate Transactions: Eliminating the TAN requirement speeds up property deals.
- Integrating TDS With PAN: This ensures better transparency and minimizes errors in tracking TDS payments.
- Easing NRI Transactions: Buying property from NRIs becomes less bureaucratic, benefiting both buyers and sellers.
Conclusion
The removal of the TAN requirement for TDS on NRI property purchases is a significant step toward simplifying real estate transactions in India. Buyers can now focus more on closing deals and less on tax compliance hassles.
While TDS compliance is still mandatory, using a PAN instead of TAN:
- Reduces paperwork
- Speeds up transactions
- Minimizes errors
- Ensures transparency
By following the proper steps and maintaining proper documentation, buyers can confidently navigate NRI property deals without worrying about complicated tax formalities. This change not only benefits buyers but also encourages NRIs to invest in India’s real estate market, making property transactions smoother for everyone involved.
FAQs
Q1: Do I still need to deduct TDS if the seller is an NRI?
Yes, TDS is mandatory for all NRI sellers.
Q2: Can I deduct TDS on part payments?
Yes. Deduct TDS on each installment paid to the NRI seller.
Q3: What if the seller provides a lower TDS certificate?
You must deduct TDS according to the certificate under Section 197.
Q4: Does this change affect resident sellers?
No. This rule applies only to NRI sellers.
Q5: How can I calculate TDS for joint buyers?
Each buyer deducts TDS in proportion to their share in the property.
Q6: What forms are required for TDS filing?
Form 26QB for payment and Form 16B to issue the TDS certificate.
Q7: Are penalties applicable for non-compliance?
Yes. Failing to deduct or deposit TDS on time can result in penalties and interest under the Income Tax Act.
Q8: Can TDS be deposited offline?
No. Deposits for NRI property transactions must be made through the online Form 26QB system.
Q9: How long does it take for the NRI seller to get TDS credit?
Once Form 26QB is submitted and TDS certificate issued, the credit is reflected in the seller’s PAN account within a few days.
Q10: Are there exemptions for TDS on NRI property?
Certain exemptions exist under Sections 54 and 54F of the Income Tax Act if conditions for reinvestment in residential property are met. Buyers should consult a tax expert.
