Buying property from an NRI? Know these dos and don'ts applicable from October 1

From October 1, 2026, eligible resident individuals and Hindu Undivided Families (HUFs) buying immovable property from an NRI do not need to obtain a separate Tax Deduction and Collection Account Number (TAN) for the transaction. Instead, they can use their PAN and report the TDS through the prescribed mechanism, including Form 141 and its relevant schedule. However, the removal of TAN does not mean that the buyer's TDS responsibility has gone away. TAN removed, but TDS obligation remains The buyer still has to determine the correct TDS rate, deduct the tax at the applicable stage, deposit it with the government and report the transaction. Form 141 provides the PAN-based mechanism for eligible buyers to report and deposit TDS on such transactions. The buyer also needs to issue the prescribed TDS certificate to the NRI seller. Companies and firms continue to require TAN. "The removal of TAN requirement simplifies compliance for eligible buyers, but it does not reduce the buyer's responsibility to deduct the correct TDS," said Sudhir Kaushik, CEO, TaxSpanner, a Zaggle company. Don't deduct 1 percent TDS blindly One of the biggest mistakes buyers make is treating an NRI property transaction like a purchase from a resident seller and deducting only 1 percent TDS. For an NRI seller, the applicable withholding provisions are different. The rate depends on the nature of the capital gain and can also involve surcharge and cess. "The biggest mistake is deducting only 1 percent TDS or deciding residency based only on PAN, Aadhaar or Indian address," Kaushik said. The buyer should therefore establish the seller's tax residency before deciding the TDS treatment. A PAN, Indian address or passport alone should not be treated as sufficient proof of residential status. Verify NRI status before making payment The buyer should check documents such as the seller's passport, visa details and residential-status declaration. The seller's PAN and overseas address should also be collected and kept with the transaction records. Chandni Anandan, Tax Expert at ClearTax, said buyers should confirm the seller's residential status because it determines the TDS treatment. "Buyers should deduct at the correct rate with surcharge and cess, and ask the seller for a lower-deduction certificate where applicable," Anandan said. Check for lower or nil TDS certificate Before releasing the payment, the buyer should ask whether the NRI seller has obtained a lower or nil deduction certificate from the tax authorities. If such a certificate is available, the buyer should verify that it is issued in the seller's name and PAN, covers the property transaction and remains valid for the payment being made. TDS should then be deducted in accordance with the certificate. Buyers should also keep a copy of the sale agreement, payment schedule, seller's PAN, relevant property documents and payment records. TDS applies to advance and instalments Another mistake is assuming that TDS needs to be dealt with only when the property sale is completed. Buyers need to account for TDS when making payments to the NRI seller, including advance, token money or instalments, as applicable. The buyer should maintain proof of the payment, TDS deduction, deposit and reporting. Where there are multiple sellers, the buyer should also maintain separate details for each co-owner and ensure that the TDS reporting corresponds with the respective seller's PAN. What buyers should keep in mind The key change from October 1 is that eligible individual and HUF buyers no longer need a separate TAN for an NRI property transaction. But the underlying tax compliance has not disappeared. Before making the payment, buyers should verify the seller's residential status, determine the applicable TDS rate after considering surcharge and cess, check for any lower or nil deduction certificate and retain all supporting documents. If the seller's residential status, capital gains treatment or certificate is unclear, buyers should seek professional tax advice before releasing the payment. A mistake in TDS can leave the buyer with a tax liability even after the property payment has been made. Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.