India’s New Income-Tax TDS Framework for Property Purchases from Non-Residents
Introduction : Buying immovable property from a foreign non-resident seller means more than looking up titles, negotiating purchase prices and registering the sale deed. There can be issues of tax deducted at source (TDS), in view of the applicability of withholding tax by virtue of the rules of payments made to non-residents in India. For the individual buying a residential flat from NRI, prior compliance can be as involved as taking TAN (Tax Deduction and Collection Account Number), irrespective of whether it was otherwise needed by that person.
As of 1 October 2026, there has been a revision of procedure in this regard. As per the provisions contained in the Income-tax Act, it is now possible for the buyer to declare this TDS through Form 141, Schedule E with the use of his/her own PAN number and without having to take TAN especially for the transaction in question. This has no effect on whether or not he/she is exempted from TDS itself, for the buyer is still expected to calculate the correct rate, deduct the tax at the appropriate time, pay the same within the prescribed period and file the relevant documents.
This paper analyses the legal framework, the revised process for TDS,
Legal Provisions
Section 393(2) and the non-resident withholding rule
Section 393 of the Income-tax Act, 2025 covers withholding requirements for specific amounts. Section 393(2), Table Serial No. 17, deals with specific amounts liable to income tax and payable to non-residents, and deals with deduction “at the appropriate rates in force.” Tax treatment of the amount charged is thus dependent upon the nature of the amount charged, appropriate rates and any treaty or tax certificate. One must not, without further consideration, assume that the 1 percent rate applies to purchases from a non-resident vendor.
Section 397 and the TAN requirement
In general, under Section 397, a taxpayer making any deduction in respect of which he is obligated by law to deduct tax has to apply for a TAN with certain exceptions and notices. In light of the modifications made in 2026 and due to the changes in the reporting procedure, it is not mandatory for an individual or HUF residing in India who acquires immovable property from a non-resident to have a separate TAN from 1st October 2026.
Form 141, Schedule E and the payment deadline
Challan cum statement Schedule E relates to tax deduction at source on the transfer of immovable property by a non-resident to an Indian citizen or HUF. As per the guidelines given by the income tax department, it should be ensured that the tax deducted is deposited within 30 days of the end of the month in which the tax is deducted. Form 141 should also be filed within one month of the end of the month. Consumers need to check the relevant due date and portal information for their respective transactions.
Section 398: consequences of failure
Penalties in case of non-deduction or payment of tax are stated in Section 398. Section 398(3) states that in case of non-deduction of tax when it is necessary to deduct tax, interest shall be charged at 1% for each month or part thereof. In case the tax has been deducted but has not been deposited, interest shall be levied at 1.5% per month or part thereof. The purchaser can also be considered an assessee in default.
Legal Analysis
What has changed from 1 October 2026?
The major difference is that it is no longer necessary to go through the TAN procedure as part of the eligibility criteria for a buyer, not that it has become unnecessary to deduct and withhold tax. In case the TAN criteria were met before the effective date, the taxpayer would have had to get the TAN, deduct and withhold tax and file the statement under the old procedure. Now the PAN way is available via Schedule E.
Form 141 is not a universal form for every purchaser or every property transfer. Schedule E is restricted to a resident individual or resident HUF buying from a non-resident. A company or another category of purchaser cannot assume that it is eligible to use Schedule E; the applicable reporting route must be checked. In the case of a property where there are sellers who live in Canada as well as others who do not reside in the country, the recommendation by the Department states that the part involving the resident seller should be reported in Schedule B and the other in Schedule E.
The rate cannot be guessed from the seller’s NRI status
It is a consistent problem to assume that the amount of TDS should be at a certain percentage of the sale price. The method of withholding would be based on the provisions of section 393(2) with reference to the rate and facts of the transaction. Issues to consider include the nature of the seller, the nature and duration of ownership of the property, the type of capital gain, the surcharge and cess that applies, the presence of any tax treaty, and whether there has been a lower or nil deduction certificate under section 395.
The capital gains liability of the seller at the end of the day and withholding requirement of the buyer are related but separate issues. While the seller will need to make sure he pays the tax just on his capital gains, the buyer cannot make an independent estimate and withhold based on it. In case both think that withholding as per default will be considerably more than what the seller owes at the end of the day, they should seek to apply for lower/no deduction certificate.
What information does Schedule E require?
As per the rules laid out on the portal, the buyer will be required to provide the property particulars, including property type, address, total stamp duty value, total consideration, payment mode and the details of any installments, if applicable. Other information to be provided by the buyer includes buyer particulars, seller particulars, share of parties, transaction date, and deduction date. In the case of further installments, the buyer will be required to fill in the acknowledgment number and cumulative payment information.
Non-resident seller particulars will include PAN, name, status, contact particulars, email, residential address overseas, and proportionate share of transaction. In the ordinary case, a tax residency certificate and tax identification number will not be needed. According to the portal guidelines, foreign address, tax residency certificate and tax identification number will have to be filled if the PAN is not valid and cannot be found, so as to avoid falling in the higher rate category under section 397(2).
When does deduction occur?
It has to be considered in light of the controlling provision, and not necessarily deferred until registration takes place. The contract can make provision for an advance, instalments and the final instalment, and each of these amounts has to be considered in determining when taxation is deductible. The new document clearly allows for lump sum and instalments transactions, first, second and final instalments included. A proper filing in respect of the first instalment will not absolve one from properly reporting the other deductions.
For this reason, the legal team should prepare a payment table before execution: gross amount due, date of credit or payment, tax to be withheld, net amount payable, person responsible for filing, due date for deposit and the acknowledgement that must be carried forward to the next instalment. This reduces the risk of a mismatch between the sale agreement, bank transfers and the tax statement.
Case Laws
There is no reported judgment for this article that directly deals with the newly introduced Schedule E which took effect from 1 October 2026. The following judgments of the Supreme Court under the old Income-tax Act, 1961, will be of assistance in regard to the general principles of withholding tax from payments made to non-residents.
GE India Technology Centre Pvt Ltd v Commissioner of Income Tax
In GE India Technology Centre Pvt Ltd. vs. Commissioner of Income Tax, the Supreme Court ruled that the requirement to deduct under the erstwhile section 195 was with respect to amounts taxable in India and rejected the argument that each remittance to a non-resident shall attract deduction irrespective of the amounts being chargeable to tax. The above judgment will require one to identify carefully the relevant charging and deduction provisions. If the property sale transaction case, the buyer should go by the law of the land with regard to the consideration and not take the decision as a license to pay nothing because of personal estimates.
Transmission Corporation of Andhra Pradesh Ltd v Commissioner of Income Tax
The case of Transmission Corporation of Andhra Pradesh Ltd v Commissioner of Income Tax related to payment made to non-residents which had an element which was taxable. It demonstrated the function of the process under former Section 195 in situations where the payer believed that only a portion of the gross amount paid was taxable.When read along with GE India Technology Centre, it shows how the payer must use the statutory method or make the determination if there is any dispute about the taxable amount.
CIT v Eli Lilly & Co (India) Pvt Ltd
The CIT v Eli Lilly & Co (India) Pvt Ltd case dealt with the question of the working of TDS requirements and the effects of the failure to adhere to these requirements in respect of transactions coming under the old provisions for the withholding of salary.[12] Even though this case had nothing to do with a property sale by an NRI, it bears significance with regard to the broader aspect that withholding obligations are statutory requirements.
Practical Implications
Drafting the sale agreement
The sales agreement must provide explicitly that the buyer can deduct and pay tax as per the law. This provision will clearly state that the sum is withheld which is part of the consideration agreed between the parties, and it is paid to the government on behalf of the seller, and not as a concession in the price. The provisions of this clause must include the obligations of both parties to provide their PAN and information for Schedule E.
In the event that the transaction involves instalment payments, it needs to specify which party will be responsible for monitoring the deductions and acknowledging them. In addition, it needs to explain how the process will be carried out in the case where there is no lower or nil-deduction certificate at the time when a payment is due.
Conveyancing checklist before completion
Establish the residential status of the buyer and his/her eligibility to use Schedule E.
Establish the identity, title/ownership, PAN number, and non-residential status of the seller for tax purposes.
Undertake title check, encumbrance check, authority to sell and other property checks independent of TDS.
Take professional advice on the applicable rates, chargeable value, surcharge, cess and any treaty/certificate issues.
Gather the agreement, property address, stamp duty value, total amount of consideration and ownership details of both parties.
Get seller details, overseas address and determine the need for tax residence certificate and tax ID information.
Match each advance/installment payment with respect to the deduction date, deposit date and reporting.
Establish the present fields for Form 141 Schedule E and record details of the acknowledgement for future installments.
Correlate the gross consideration, TDS deducted and net amounts paid with the agreement and completion certificate.
Keep the challan, filed declaration, acknowledgment, tax certificate and related correspondence for the transaction file.
Sample TDS clause
"Tax at source on the consideration payable to the Seller shall be deducted to the extent and in the manner as required under applicable law, deposited and accounted for within the stipulated period, and an appropriate challan, acknowledgment, and TDS certificate shall be furnished to the Seller. The Seller will provide his PAN and residential status particulars, as well as any other necessary particulars for TDS purposes, promptly. Reduced or zero deductions shall be made only as per a valid certificate or other acceptable authority."
Why coordination matters
The buyer’s solicitor must work together with the buyer’s tax advisor prior to signing of the agreement, particularly when there is an overseas vendor, multiple vendors, a vendor holding various interests in the property, installment consideration being paid and a low deduction certificate being considered. It is necessary that the legal team does not make any commitments regarding the net figure prior to the tax position having been determined. The completion documentation needs to reflect the gross consideration, withholding tax and net payment.
Conclusion
The new Form 141 Schedule E process is a meaningful procedural improvement for eligible resident individuals and HUFs purchasing immovable property from non-residents. From 1 October 2026, these buyers can use their PAN to report and pay TDS without obtaining a separate TAN solely for the transaction. Though the modification eliminates a step in the administration process, it does not eliminate the requirement to make proper deductions or ensure proper filing of forms.
For practising conveyancers, therefore, the most practical approach to TDS is to deal with it prior to completion by verifying the status of TDS, determining the rate that will apply, gathering the details from the seller and structuring installment payments. The best way to avoid any avoidable disputes in this regard is to have an accurate paper trail in the form of documents for the transaction.
Author: Mohith Nandi in case of any queries please contact/write back to us via email to content@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney
References
Income Tax Department, ‘Form 141 Schedule E: Challan-cum-Statement of Deduction of Tax under Section 393(2)’(official e-Filing portal guidance, accessed 20 October 2026).
Income-tax Act, 2025, section 393, section 393(2), Table, Serial No. 17; see also the applicable rates in force and any relevant certificate or treaty provision.
Income-tax Act, 2025, section 397; Income Tax Department, Budget 2026 FAQs, section on the removal of the TAN requirement for eligible purchases from non-residents.
Income Tax Department, ‘FAQs for Form 141 (Challan-cum-Statement of Deduction of Tax under Section 393(1) & 393(2))’ (accessed 20 October 2026).
Income Tax Department, ‘Form 141 Schedule E’.
Income Tax Department, ‘FAQs for Form 141’.
Income Tax Department, ‘Form 141 Schedule E’, transaction-details and instalment instructions.
GE India Technology Centre Pvt Ltd v Commissioner of Income Tax (2010) 327 ITR 456 (SC).
Transmission Corporation of Andhra Pradesh Ltd v Commissioner of Income Tax (1999) 239 ITR 587 (SC).
Commissioner of Income Tax v Eli Lilly & Co (India) Pvt Ltd (2009) 312 ITR 225 (SC).
Central Board of Direct Taxes, Notification No 121/2026, GSR 830(E), 22 September 2026 (amending the Income-tax Rules, 2026 and Forms 132 and 141). See the Income Tax Department’s official e-Filing portal.
Comments