Will Budget 2026 fix NRI exit barrier? Experts call for simplified TDS rules on property sale

NRI

• Calls grow to simplify TDS rules for NRI property sales ahead of Budget 2026
• Current TDS rates for NRI sellers range from 12.5 percent to 31.2 percent
• Deloitte suggests easing compliance to boost NRI participation in real estate

Did our AI summary help?

As the Union Budget 2026 approaches, there are growing calls to simplify tax deduction at source (TDS) rules for property transactions involving non-resident Indians (NRIs). The current framework locks up large sums of money, according to a Deloitte India report.

Under existing income tax provisions, a home buyer is required to deduct 1 percent TDS if the property value is Rs 50 lakh or more when the seller is a resident Indian. The process in such cases is relatively straightforward, with tax deposited through a challan-cum-statement using Form 26QB.

Tax compliance rules for NRI sellers

When the seller is an NRI, in such transactions, TDS is deducted at much higher rates- often ranging from 12.5 percent to as high as 31.2 percent- depending on the nature of capital gains.

Capital gains tax on property is classified into two categories based on the holding period: short-term capital gains (STCG) and long-term capital gains (LTCG).

LTCG: If a property is sold after being held for more than two years, the gains from the sale are treated as long-term capital gains.

STCG: If the property is sold within two years of acquisition, the gains arising from the sale are classified as short-term capital gains.

In addition, the buyer must obtain a Tax Deduction and Collection Account Number (TAN), deposit the tax and file e-TDS returns, adding multiple layers of compliance to what is usually a one-time transaction.

Deloitte noted that this prolonged and complex process often creates hesitation among buyers to transact with non-resident sellers. Since property purchases are not recurring in nature, obtaining a TAN solely for one deal leads to a growing number of inactive TANs, increasing the administrative burden for both taxpayers and the tax department.

The compliance risk is further amplified by information gaps. Buyers depend heavily on confirmations provided by NRI sellers regarding residential status and tax applicability. Any incorrect or incomplete information can expose buyers to penalties, interest and future scrutiny.

For sellers, the impact is even more severe. a significant portion of sale proceeds- sometimes between 12.5 percent and 31.2 percent- remains blocked with the tax department until refunds are processed. This restricts liquidity and limits the seller’s ability to reinvest funds or deploy them in tax-saving instruments within stipulated timelines.

Is there any relief provided under existing tax law?

NRIs can apply for a lower or nil TDS certificate under Section 197 of the Income Tax Act by filing Form 13. This allows TDS to be deducted only on the actual capital gains rather than on the entire sale consideration.

Deloitte highlighted that the approval process is often time-consuming and unpredictable. In several cases, delays in receiving the certificate result in stalled transactions or even loss of prospective buyers.

The TDS process applicable for cases where the seller is an NRI may be eased by introducing these challan-cum-statements similar to those for resident sellers.

With rising NRI participation in India’s real estate market, Deloitte tax experts believe a rationalised TDS framework could not only ease compliance but also encourage smoother capital flows into the sector.