No TAN Required for Buying Property from NRIs: Simplified TDS Compliance under Section 195
Purchasing immovable property from Non-Resident Indians (NRIs) has historically been one of the most fraught compliance procedures under Indian tax law. Individual buyers, who otherwise have no business operations or tax audit obligations, were mandated to obtain a Tax Deduction and Collection Account Number (TAN) and file complex quarterly TDS returns under Section 195. In a major procedural reform taking effect from October 1, the Central Board of Direct Taxes (CBDT) has eliminated the mandatory TAN requirement for resident buyers purchasing property from non-residents, replacing it with a streamlined, PAN-based challan-cum-statement mechanism featuring the expanded Form 141 and Schedule E.
Understanding the Paradigm Shift in NRI Property TDS Compliance
Prior to this update, while domestic property acquisitions exceeding ₹50 Lakhs attracted a simple 1% TDS under Section 194-IA through a PAN-based Form 26QB without needing a TAN, property purchases from NRIs fell squarely under Section 195. Section 195 governed payments to non-residents at applicable capital gains tax rates (often 20% plus surcharge and cess) and strictly required the buyer to obtain a TAN, deposit TDS via Challan ITNS 281, and file quarterly TDS returns in Form 27Q.
This statutory rigidity caused significant distress, transaction delays, and inadvertent non-compliance penalties for ordinary homebuyers. Recognizing these operational bottlenecks, the tax administration has restructured the compliance workflow under Section 195, aligning it closely with the hassle-free PAN-based system while introducing enhanced data capturing via Form 141 and its newly embedded Schedule E.
Statutory Focus: Section 195 vs. Section 194-IA
Section 195: Mandates tax deduction at source on any sum payable to a non-resident which is chargeable to tax under the Income-tax Act, 1961. Unlike Section 194-IA (flat 1% on consideration > ₹50 Lakhs for resident sellers), Section 195 applies to the entire capital gain or gross payment depending on whether a Lower/Nil Deduction Certificate under Section 197 has been issued by the Assessing Officer.
Key Amendments: What Changes from October 1?
The updated rules fundamentally alter how buyers report and deposit tax deducted at source when transacting with non-resident sellers:
- Removal of Mandatory TAN Requirement: Individual buyers no longer need to apply for or maintain a TAN solely for buying property from an NRI. Transactions will now be identified primarily through the buyer's and seller's Permanent Account Numbers (PAN) or Aadhaar numbers.
- Expansion of Form 141 with Schedule E: Form 141 serves as the comprehensive challan-cum-statement for reporting TDS under Section 195 on property transactions. The introduction of Schedule E expands the granularity of data required from buyers.
- Granular Seller & Property Reporting: Buyers must now disclose comprehensive seller profile metrics, including tax residence status, Tax Identification Number (TIN) in the seller's home country, DTAA relief claims (if any), explicit property breakdown, and reference details of any certificate issued under Section 197.
Comparative Analysis: Old Compliance vs. New Compliance Framework
| Compliance Parameter | Legacy Framework (Pre-Oct 1) | New Simplified Framework (Post-Oct 1) |
|---|---|---|
| Registration Needed | Mandatory TAN required for Buyer | Only Buyer's & Seller's PAN / Aadhaar |
| Payment Challan | Challan ITNS 281 | Form 141 (Challan-cum-Statement) |
| Quarterly TDS Return | Form 27Q mandatory | Discontinued for single property sales by individuals |
| TDS Certificate | Form 16A generated quarterly via TRACES | Streamlined certificate download post Form 141 submission |
Detailed Breakdown of Form 141 & Schedule E Disclosure Requirements
While the elimination of TAN simplifies the initial administrative overhead, tax professionals and Chartered Accountants must ensure accurate reporting in Schedule E of Form 141. Inaccurate declarations can lead to automated demand notices under Section 200A or disallowance of credits on the seller’s Form 26AS/AIS.
Essential Fields to Fill in Schedule E:
- NRI Seller Identification: Name, address in home country, country of tax residence, foreign Tax Identification Number (TIN) or functional equivalent, and valid Indian PAN.
- Property Specifications: Complete physical address, survey number/door number, category (residential, commercial, land), and ownership share percentage if there are co-owners.
- Financial Details: Total agreed sale consideration, installment breakdown (if paid in tranches), exchange rate applied (if consideration was calculated in foreign currency), and actual tax deducted.
- Section 197 Certificate Details: If the NRI seller obtained a Certificate for Lower or Nil Deduction, the buyer must quote the 10-digit Certificate Identification Number (DIN/CIN) issued by the Income Tax Department to justify deducting tax at a rate lower than the standard 20% plus applicable surcharge.
Practical Advisory for CAs and CFOs
Always verify whether the NRI seller has obtained a valid Lower Tax Deduction Certificate under Section 197 prior to executing the payment. In the absence of a Section 197 certificate, withholding tax must be computed on the entire purchase price (not just capital gains) at maximum applicable rates including applicable surcharge and 4% Health & Education Cess, to avoid personal liability under Section 201 for short deduction.
Step-by-Step Action Plan for Buyers & Tax Practitioners
To navigate the new framework seamlessly from October 1 onwards, follow this structured compliance workflow:
Step 1: Determine Residential Status & Taxability
Establish the seller's tax residence status under Section 6 for the relevant Financial Year. Obtain a copy of their Indian PAN, Foreign Passport, and Tax Residency Certificate (TRC) if DTAA benefits are being evaluated.
Step 2: Obtain Lower Deduction Certificate (Section 197)
Advise the non-resident seller to apply early via Form 13 on the Income Tax e-filing portal to obtain a Section 197 certificate specifying the exact tax rate applicable to their net capital gains.
Step 3: Execute Payment and Deduct Tax
Deduct TDS at the mandated rate (either standard Section 195 rate or lower rate as per Section 197 certificate) at the time of credit of amount to the seller's account or actual payment, whichever is earlier.
Step 4: Deposit TDS via Form 141 (with Schedule E)
Access the e-filing portal / TIN-NSDL system, select Form 141, complete Schedule E with seller and property parameters, and make the online payment within 30 days from the end of the month in which deduction was made.
Step 5: Download & Issue TDS Certificate
After processing, download the official TDS certificate from the TRACES portal and issue it to the non-resident seller for their tax credit claims.
Practical Impact Summary
The easing of TDS compliance for property purchases from NRIs marks a significant step toward modernizing Indian direct tax administration. For individual buyers, it removes the long-standing hassle of acquiring TANs and dealing with quarterly Form 27Q filings. For non-resident sellers, the seamless integration of Schedule E ensures faster reflection of TDS credits in their Form 26AS and AIS, accelerating capital gains tax assessments and tax refunds. Tax practitioners and CFOs managing high-net-worth real estate transactions can now execute cross-border property acquisitions with substantially reduced legal friction and compliance timelines.
Key Takeaways Checklist
- ✔️ No TAN Needed: Resident buyers purchasing property from non-residents no longer require a TAN.
- ✔️ PAN-Based System: Operations shift to PAN/Aadhaar identification using Form 141.
- ✔️ Form 141 & Schedule E Mandatory: Detailed property, seller TIN, and Section 197 certificate data must be filed via Schedule E.
- ✔️ No Quarterly Form 27Q: Eliminates standalone quarterly return requirements for individual buyers.
- ✔️ Enhanced Compliance Accuracy: Quoting Section 197 certificates directly in Form 141 prevents auto-generated tax demands under Section 200A.