Say a family in Gurugram is buying a flat from an uncle who's been in Dubai for ten years. Their accountant raises one thing straight away: the seller is a non-resident, so TDS applies from the first rupee. Until now, the buyer also had to get a TAN just to deposit that tax. As of 1 October 2026, that step is gone for buyers like them. But the rest of the burden hasn't moved and plenty of people will mix those two things up.
What Has Changed in the TDS Rules from 1 October 2026?
CBDT has issued the Income-tax (Fifth Amendment) Rules, 2026 on September 22, 2026 and they come into force from October 1. In practice, three things happen.
First, remittances to non-residents related to the immovable property now can follow the PAN-based challan-cum-statement process (section 393(2), Sl. No. 17). The buyer files Form 141 with a new Schedule E and uses their own PAN. Second, Form 132, the TDS certificate, has been adjusted for these deals. Third, section 397(1)(c)(iii) of Act No. 4 of 2026 now applies, so a resident individual or HUF buying property from a non-resident doesn't need a TAN anymore.
Notice what's missing. Nobody has cut a rate. This is a paperwork fix. Buyers still deduct at rates in force, deposit the money, report it and issue a certificate.
Who Can Use the New PAN-Based TDS Filing Process?
The relief is for resident individuals and HUFs buying land (not agricultural land) or a building, or both, from a non-resident. Companies, firms and LLPs get nothing here. They still need a TAN and still file the quarterly Form 144.
On the seller's side you have NRIs, foreign nationals who are non-resident for Indian tax purposes, and foreign companies. One-point trips people up constantly: residential status has nothing to do with citizenship. An Indian passport holder living abroad can be a non-resident, and a foreign citizen who's tax-resident in India usually isn't one. The Act decides, not the passport and not the bank account.
How Much TDS Does a Buyer Need to Deduct When Buying from an NRI?
Section 393(2) [Sl. No. 17] says deduct at rates in force on whatever is paid or credited to the non-resident. There's no threshold. Without a certificate, the buyer deducts on the whole consideration, not only on the gain.
The tax rate for long-term capital gains (over 24 months) will be 12.5%, non-indexed, according to Section 197(1) of the 2025 Act. The grandfathering rule provided by Section 197(3) – where the lower of 12.5% non-indexed or 20% indexed applies for properties purchased prior to 23 July 2024 – applies to residents only. (I'd double-check that section reference before publishing, since my source itself marks it for verification.) For short-term gains, which means 24 months or less, the seller's slab rates apply.
Surcharge and cess go on top. Form 141 Schedule E (Note 10) says TDS includes surcharge where applicable and cess. Surcharge on capital gains is capped at 15%, and cess is 4% of tax plus surcharge.
1% TDS Rule Does Not Apply to Property Bought from an NRI, Why?
Almost everyone knows the 1% property TDS. It lives in section 393(1) [Sl. No. 3(i)] and covers resident sellers only, and only where consideration or stamp duty value (the higher one) reaches ₹50 lakh. NRI sellers sit under a different provision altogether.
Resident seller (s.393(1), Sl. 3(i)) | Non-resident seller (s.393(2), Sl. 17) |
Rate | 1% of the higher of consideration or SDV | Rates in force (12.5% LTCG, slab for STCG) plus surcharge and 4% cess |
| Threshold | ₹50 lakh | None |
| Buyer's route | Form 141 (Schedule B) | Form 141 Schedule E (resident individual/HUF) |
If a buyer deducts 1% without checking where the seller is resident, the obligation hasn't been met, and a shortfall follows.
For example: These figures are assumed. A resident individual buys a Delhi apartment from an NRI for ₹2,00,00,000. It's been held for more than 24 months, so the gain is long-term. No certificate exists, so the buyer withholds on the full price.
- 12.5% of ₹2 crore: ₹25,00,000
- Surcharge at the 15% cap: ₹3,75,000
- Cess at 4%: ₹1,15,000
- Total: roughly ₹29,90,000, which is about 14.95% of the price (12.5% × 1.15 × 1.04)
Now suppose the seller's actual gain is just ₹80,00,000. Tax on that comes to around ₹10,00,000 plus surcharge and cess, a small slice of what got held back. If the seller had a section 395(1) certificate fixing deduction on the real gain, or applying a treaty rate, the buyer would deduct only that amount, and most of the ₹29.90 lakh would stay with the seller at closing instead of coming back after a refund cycle. Compare a resident seller of the same flat: 1% on an assumed stamp duty value of ₹80 lakh is ₹80,000. All of this assumes no treaty benefit.
How the Buyer or Seller Can Reduce the TDS Deduction
Sellers should apply on Form 128 for a lower or nil deduction certificate under section 395(1). It replaces the old Form 13, so anything online that talks about Form 13 or 15E is describing the repealed 1961-Act system. The application goes through TRACES, needs a PAN, and has to be filed before the transaction. Treaty relief comes through this certificate too. The assessing officer applies the treaty rate, so it isn't automatic.
Buyers have their own option. Under section 395(2), they can file Form 129 to have the taxable proportion of the payment determined, which is handy when part of the price is just a return of capital. Schedule E has space for both certificates.
If the money is going abroad, Forms 145 and 146 (the successors to 15CA and 15CB) come into play, and Schedule E asks for the Form 145 acknowledgement number.
Key Steps a Buyer Should Follow Before Completing the Property Purchase
1. First, you need to determine the seller's tax residency. This can't be determined based on their citizenship or where their bank is located.
2. Collect the following information prior to completion. PAN or TRC Number, Foreign Tax Identification Number, Contact Information, Foreign Address (rule 217 to protect against higher rate), Agreement and Registration Dates, Value of Stamp Duty and Instalment Schedule.
3. Calculate if this will be a long term or short-term gain and choose the correct rate.
4. Ask whether the seller has a valid section 395(1) certificate. If so, deduct at that rate, never above it.
5. Deduct at the earlier of credit or payment, deposit the tax and file Form 141 with Schedule E under your PAN. Resident individuals and HUFs need no TAN. Instalments are marked first, subsequent or last.
6. Give the seller Form 132 within 15 days of the Form 141 due date. Form 141 itself is due 30 days after the month-end of deduction. The 15-day figure comes from secondary reporting, so check it against the rules.
7. For joint purchases, Schedule E lists every buyer's PAN and share (adding up to 100%), and each buyer files a separate Form 141 for their own portion. A company or firm among the co-buyers still needs a TAN.
What the NRI Seller Should Prepare Before Selling the Property
Complete the Form 128 well ahead of time. As a rule of thumb, six to eight weeks ahead of execution, but there is no statutory requirement. Get all your purchase deed, cost evidence, exemption claims, and Tax Residency Certificate ready.
Give your PAN, TRC, and foreign TIN number to the buyer even if you already have a PAN number because of Schedule E requirements. And if there's no certificate, expect TDS on the full price. You'll file your return later and claim any excess using the Form 132 the buyer issues.
What Happens If the Buyer Does Not Deduct the Correct TDS?
If tax isn't deducted at all, section 397(2) requires deduction at the highest of the provision rate, the rates in force, or 20%. The buyer can be treated as in default under section 398, which means interest, and possible disallowance if the payment counts as a business expense.
Mistakes I'd watch for:
- Using the 1% resident rule on an NRI seller, or believing the October change lowered rates.
- Treating "no TAN" as "no TDS." Deduction, deposit, reporting and certification all continue.
- Mixing up citizenship and residence, in either direction.
- Assuming the ₹50 lakh threshold shields small NRI sales. It belongs only to the resident-seller provision.
- Applying treaty rates on assumption, without certificate paperwork.
- Forgetting that agricultural land falls outside the Schedule E framework and raises separate FEMA issues.
Key Takeaways for Buyers and NRI Sellers
For resident individuals and HUF purchasers, October 2026 is indeed a simplification: PAN-compliant Form 141, Schedule E, which does not require TAN details. What has not changed is that the taxation on the sale proceeds for NRIs remains the same. The sellers, having procured the Form 128 certificate before the closing can whittle down the cash withholding which is generally around 14.95% of the sale proceeds, to tax on actual gain. The buyers can keep out of problems related to deemed defaults by establishing their residence and filing the returns in time.
FREQUENTLY ASKED QUESTIONS
Resident individuals and HUFs buying property from non-residents don't need a TAN just for that purchase. They report and deposit TDS through Form 141 Schedule E using their PAN. Rates and the obligation to deduct are untouched.
Not as a resident individual or HUF. Companies, LLPs and firms generally still do.
he rates specified in section 393(2) of the Income Tax Act, 2025, are subject to adjustment depending on whether gains are classified as long-term or short-term, in addition to requiring the payment of surcharge and cess. Don't fall back on 1%.
No. It's part of the resident-seller provision. Tax can be due on an NRI sale below ?50 lakh if the payment includes an amount chargeable to tax in India.
It's the challan-cum-statement a resident individual or HUF buyer uses to report and pay TDS on a property bought from a non-resident, filed on the e-filing portal with the buyer's PAN.
Yes, under section 395(1), if expected taxable income and supporting records justify it. The buyer has to follow its terms.
The law is about sums chargeable to tax. In practice, with no certificate, buyers usually withhold on the full consideration to be safe. A valid certificate lets them deduct on a fixed amount instead.
Documents include the seller’s PAN, residence status information, sale agreement, details of the property and payment terms, TRC, foreign tax number, and any lower deduction certificate.
There's a shortfall, and the buyer may face recovery, interest and other consequences. Fixing the deduction and filing quickly limits the damage.
Buyers confirm residence, compute the withholding, check for a certificate, then pay and report. Sellers prepare their gains computation, cost documents and certificate application before closing. Both should reconcile TDS records and keep their papers.