The Indian real estate sector, long a preferred investment destination for the global Indian diaspora, is set to undergo a significant regulatory transformation. Starting October 1, 2026, the compliance framework for purchasing property from Non-Resident Indians (NRIs) will be drastically simplified. In a move aimed at enhancing the "Ease of Doing Business" and reducing the bureaucratic burden on individual taxpayers, the Indian government has announced that resident buyers will no longer require a Tax Deduction and Collection Account Number (TAN) to process Tax Deducted at Source (TDS) for such transactions. Instead, the ubiquitous Permanent Account Number (PAN) will suffice.
This administrative shift marks a departure from decades of complex tax procedures that often deterred resident buyers from engaging with NRI sellers. While the underlying tax liabilities remain unchanged, the procedural overhaul is expected to accelerate transaction timelines and minimize compliance risks for the average homebuyer.
1. Main Facts: Understanding the Regulatory Shift
The crux of the upcoming change lies in the mechanism of tax reporting. Under current Indian tax laws, specifically Section 195 of the Income Tax Act, any person responsible for paying a non-resident any sum chargeable to tax must deduct income tax at the time of credit or payment.
The Current Hurdle: The TAN Requirement
Until September 30, 2026, a resident buyer purchasing property from an NRI is classified as a deductor who must possess a TAN. Unlike a PAN, which almost every taxpayer holds, a TAN is a ten-digit alphanumeric number required for those responsible for deducting or collecting tax at source. For a salaried individual or a first-time homebuyer, obtaining a TAN involves a separate application process (Form 49B), periodic filing of TDS returns (Form 27Q), and the issuance of TDS certificates.
The New Provision: PAN-Based Compliance
From October 1, 2026, the government will allow buyers to use their PAN for reporting and depositing TDS on property purchases from non-residents. This aligns the process with the existing rules for buying property from resident Indians (Section 194-IA), where a PAN-based challan-cum-statement (Form 26QB) is used.
No Change in Tax Liability
It is crucial to distinguish between how the tax is reported and how much tax is paid. The removal of the TAN requirement does not grant a tax exemption. The resident buyer remains legally obligated to deduct the correct amount of TDS and deposit it with the government. Failure to do so can result in heavy interest penalties and the disallowance of expenses.
2. Chronology: The Road to October 2026
To ensure a smooth transition, the government has provided a clear timeline for stakeholders. The transition is not retrospective, meaning the date of payment or credit determines which rule applies.
- Pre-July 23, 2024: Long-term capital gains (LTCG) on real estate were generally taxed at 20% with indexation benefits.
- July 23, 2024 – Present: Following the Union Budget 2024, the LTCG rate was revised to 12.5% without indexation for properties sold after this date. This remains the base rate for calculating TDS in many NRI transactions.
- August 2026: Official notifications and guidelines are disseminated to banks and authorized dealers to prepare for the technological shift in the e-filing portal.
- September 30, 2026: This is the final deadline for the old system. Any payment made to an NRI seller on or before this date must be processed using a TAN. Buyers who have already applied for a TAN for ongoing transactions must complete their filings under the existing framework.
- October 1, 2026: The PAN-based system becomes effective. Buyers initiating payments on or after this date can bypass the TAN application process entirely.
3. Supporting Data: TDS Rates and Thresholds
One of the most common misconceptions in Indian real estate is that the rules for buying from a resident and a non-resident are identical. They are not, and the 2026 rule change only bridges the administrative gap, not the fiscal one.
The Rs 50 Lakh Threshold Disparity
In transactions between two resident Indians, Section 194-IA stipulates that TDS (at 1%) is only applicable if the property value exceeds Rs 50 lakh. However, for NRI sellers, there is no minimum threshold. Whether the property is worth Rs 10 lakh or Rs 10 crore, the buyer must deduct TDS from the very first rupee.
Applicable TDS Rates
The rate of deduction for NRI sellers is significantly higher than the 1% applicable to residents, as it is based on the nature of the capital gain:
- Long-Term Capital Gains (LTCG): If the NRI has held the property for more than 24 months, the base TDS rate is generally 12.5% (post-2024 budget).
- Short-Term Capital Gains (STCG): If held for less than 24 months, TDS is deducted at the slab rate applicable to the NRI, which can go as high as 30%.
- Surcharges and Cess: In addition to the base rates, a health and education cess of 4% is mandatory. Depending on the transaction value, surcharges ranging from 10% to 37% may also apply, potentially pushing the effective TDS rate above 20% or even 40% in high-value STCG cases.
The Role of the Lower Deduction Certificate (LDC)
Since TDS is often deducted on the total sale consideration rather than the actual profit (capital gain), many NRIs find that the tax deducted far exceeds their actual liability. To mitigate this, NRIs often apply for a "Lower Deduction Certificate" under Section 197. If the seller provides this certificate, the buyer must deduct tax at the lower rate specified by the Assessing Officer.
4. Official Context and Policy Objectives
The Ministry of Finance and the Central Board of Direct Taxes (CBDT) have signaled that this move is part of a broader strategy to digitize and simplify the tax ecosystem.
Ease of Compliance
Official sources suggest that the TAN requirement was a significant "compliance friction point." Many individual buyers, unaware of the distinction between resident and non-resident sellers, often failed to obtain a TAN, leading to unintentional tax defaults. By moving to a PAN-based system, the government is leveraging the existing digital infrastructure (the TRACES portal) to make compliance as "one-click" as possible.
Transparency and Tracking
The shift to PAN-based reporting does not mean the government is relaxing its vigil. On the contrary, PAN is more deeply integrated into the Annual Information Statement (AIS) and Taxpayer Information Summary (TIS). By linking these high-value transactions directly to the buyer’s and seller’s PAN, the Income Tax Department can more accurately track capital gains and ensure that the seller files their final tax returns in India to claim any excess TDS refunds.
Boosting NRI Investment
The real estate industry has long lobbied for these changes. Industry bodies like CREDAI (Confederation of Real Estate Developers’ Associations of India) have noted that administrative hurdles often make NRI sellers less competitive in the secondary market, as buyers prefer the "easier" paperwork associated with resident sellers. Simplifying the buyer’s side of the equation is expected to make NRI-owned assets more liquid and attractive.
5. Implications for Stakeholders
The transition to a PAN-based system on October 1, 2026, will have far-reaching effects on various players in the real estate ecosystem.
For Resident Buyers
The primary beneficiaries are the buyers. They will save the costs and time associated with hiring chartered accountants to apply for TANs and file quarterly returns. The risk of receiving "Notice for Non-Filing of TDS Return" is significantly reduced when using the simplified Form 26QB-style reporting.
For NRI Sellers
While the seller’s tax rate doesn’t change, the "salability" of their property improves. Buyers who were previously hesitant to deal with the "TAN headache" will now view NRI-owned properties with the same ease as resident-owned ones. However, NRIs must ensure their PAN is linked with Aadhaar (if applicable) and is "Active," as a higher TDS rate applies if the seller’s PAN is inoperative.
For Real Estate Consultants and Lawyers
The role of intermediaries will shift from purely administrative (filling out TAN forms) to advisory. Professionals will need to focus more on determining the correct "residential status" of the seller. A common pitfall is a seller who has recently moved abroad but still holds an Indian savings account; if they qualify as a non-resident under the Income Tax Act, the new 2026 rules must be followed regardless of their bank account type.
For the Banking Sector
Banks facilitating home loans will need to update their internal compliance checklists. Currently, most banks insist on seeing a TAN registration before disbursing the TDS portion of a loan to an NRI seller. Post-October 2026, systems will need to be recalibrated to accept PAN-based challans for these specific transactions.
6. Practical Checklist for the Transition Period
As the October 1, 2026, deadline approaches, parties involved in property deals should keep the following points in mind:
- Verify Residential Status: Always confirm if the seller is an NRI as per the Income Tax Act (which depends on the number of days spent in India), not just whether they have an NRI bank account.
- Timeline Management: If a deal is set to close in September 2026, the buyer must apply for a TAN immediately. Do not delay payments in hopes of using the PAN-based system if the sale agreement dictates an earlier schedule.
- The 12.5% Benchmark: Ensure that TDS calculations reflect the latest 2024 budget rates. If the seller claims a lower rate, insist on an official Lower Deduction Certificate from the Income Tax Department.
- Deposit Deadlines: Even with the PAN-based system, TDS must typically be deposited within 30 days from the end of the month in which the deduction was made. Delay leads to an interest penalty of 1% to 1.5% per month.
- Form 16B/27U: After depositing the tax, the buyer must provide the seller with a TDS certificate. Under the new rules, the format of this certificate may be updated to reflect the PAN-based reporting.
Conclusion
The transition from TAN to PAN for NRI property sales is a landmark reform in India’s tax administration. By removing a significant layer of paperwork, the government is acknowledging the changing profile of the Indian homebuyer—moving away from institutional players toward individual citizens who demand simplicity.
As October 1, 2026, nears, the real estate market is expected to see a slight uptick in NRI-led transactions, buoyed by the promise of a frictionless compliance environment. While the taxman still takes his share, the process of giving it is finally becoming less of a burden. For the NRI community, this represents one more step toward seamless integration with the Indian economy, ensuring that "home" remains a viable and hassle-free investment.
