The TAN Headache Is Gone: What Budget 2026's PAN-Based TDS on NRI Property Sales Actually Fixes (and What It Quietly Leaves Untouched)

A reader in Toronto spent most of 2025 trying to sell an inherited flat in Pune to a resident buyer who, the week before registration, discovered he needed a TAN to deduct tax on the payment. The buyer had never heard of a TAN, his bank had not heard of it either, and the registration slipped by five weeks while a Tax Deduction Account Number was applied for, approved, and then used exactly once in his life. The deal nearly collapsed. From 1 October 2026, that specific failure cannot happen again. Budget 2026 lets a resident buyer deduct TDS on a purchase from an NRI using only a PAN, the same way they already do when buying from another resident. It is a genuine fix to a real and frequent deal-killer. It is also far narrower than the headlines suggest.

The 30-second answer: From 1 October 2026, a resident buying immovable property from an NRI deducts TDS under Section 195 using a PAN-based challan-cum-statement, with no TAN required. This removes the 7 to 15 day TAN wait, the separate Form 27Q quarterly return, and manual Form 16A issuance that routinely delayed or broke NRI property deals. What it does not change: TDS is still deducted on the full sale consideration, not the gain, at 12.5% plus surcharge and cess for long-term property. The only cure for that over-withholding remains a Section 197 lower-deduction certificate (Form 13). Deals where payment is made before 1 October 2026 still run on the old TAN-based process. The reform fixes the buyer's paperwork, not the seller's locked-up cash.

This is a news-analysis piece, so it assumes you already understand the basics of how an NRI is taxed on a property sale and how TDS and refunds work; if you do not, start with selling property in India as an NRI and TDS for NRIs and refunds. What follows is the part that matters now: why the TAN requirement was such a specific and underrated obstacle, exactly what the 1 October 2026 change repairs, the larger problem it deliberately leaves in place, and the different playbook for a deal closing in September 2026 versus one closing in November.

Why a single missing number used to break NRI property deals

To understand the relief, you have to understand how oddly the law treated two nearly identical transactions. When a resident sells a flat worth over Rs 50 lakh, the buyer deducts 1% under Section 194-IA and deposits it on a PAN-based challan-cum-statement (long known as Form 26QB), no TAN, no quarterly return, no certificate to generate by hand. It is a fifteen-minute job most buyers complete themselves. The moment the seller is a non-resident, the transaction falls out of 194-IA and into Section 195, the catch-all provision for payments to non-residents, and the entire compliance machinery changes.

Under the old Section 195 route, the buyer had to obtain a Tax Deduction Account Number (TAN) on Form 49B before deducting a single rupee. A TAN is a deductor's registration, built for businesses that withhold tax routinely on salaries and vendor payments. Forcing an ordinary individual, often buying the one property of their life, to register as a tax deductor was the bureaucratic equivalent of making someone get a commercial driving licence to move house once. The TAN took 7 to 15 days to come through, and in a joint purchase each co-buyer needed their own, so a flat bought by a husband and wife meant two Form 49B applications.

It did not end with the TAN. The buyer then deposited the tax by the 7th of the following month, filed a quarterly Form 27Q (the non-resident equivalent of the resident's challan), and downloaded Form 16A from the TRACES portal to hand the NRI seller as proof. Each of those steps had its own deadline and its own penalty for getting it wrong: Section 234E charges Rs 200 a day for a late return, Section 271-I carries a Rs 1 lakh penalty for failing to furnish required information, and Section 271C can impose a penalty equal to the entire TDS for failure to deduct. A genuinely common, expensive error was the buyer or their lawyer filing the resident's Form 26QB instead of Form 27Q, which is simply the wrong form for an NRI seller and creates a mismatch that the seller then has to unwind.

The honest framing of the old regime is that it punished honesty. The buyers who got into trouble were not evaders; they were sincere people defeated by a process designed for corporates. Deals slipped, registrations stalled, and NRI sellers watched their sale proceeds, and their repatriation timelines, hostage to a number their buyer had never heard of.

What 1 October 2026 actually repairs

The Finance Act 2026 change is precise: for payments made on or after 1 October 2026, the resident buyer of property from a non-resident deducts and deposits TDS under Section 195 using a PAN-based challan-cum-statement, the same self-contained mechanism already used under Section 194-IA. The TAN requirement for this transaction is gone. With it goes most of the surrounding apparatus. There is no separate quarterly return to file (the challan-cum-statement does the reporting), the deposit follows the cleaner challan timeline rather than the deductor's monthly cycle, and the TDS credit is expected to land in the seller's Form 26AS far faster, because there is no quarterly return sitting between the deposit and the credit.

Note one piece of housekeeping the new framework brings, because you will see it in forms and you should not be thrown by it. Under the rules accompanying the new regime, several familiar form numbers are being renumbered. The resident challan-cum-statement that everyone calls Form 26QB is being folded into a unified property-TDS challan, and the non-resident quarterly return historically known as Form 27Q is being renumbered. The numbers on the screen will look unfamiliar through late 2026; the mechanics are what matter, and the mechanic is that the buyer now files one PAN-based challan-cum-statement and is done. The exact form notification for the NRI transaction sits under the new income-tax rules, so confirm the live form name on the e-filing portal at the time of your deal rather than trusting a blog's form number, this one included.

Put the relief in a concrete deal. Take the Toronto reader's flat, sold in November 2026 for Rs 1,50,00,000 to a resident couple buying jointly. Under the old process, both spouses apply for a TAN (two Form 49B applications, a one-to-two week wait each), deduct the tax, deposit it by the 7th of December, file Form 27Q for the quarter, and download Form 16A to hand over. Under the new process, the couple log into the e-filing portal, file a single PAN-based challan-cum-statement using the PAN of the buyer making the payment, pay the tax, and the seller sees the credit in Form 26AS within days. The deal does not wait on a TAN, the registration is not held up, and there is no quarterly return looming. The counterfactual is stark: the same couple buying the same flat from this NRI in August 2026 get none of this, because their payment falls before 1 October 2026 and the old TAN-based route still governs them. The reform is real, but it is dated, and the date is the whole story for anyone transacting this year.

The bigger problem it deliberately leaves standing

Here is the part the celebratory coverage skates over, and it is the part that costs an NRI seller actual money. The reform did not touch how much is withheld, only how it is deposited. TDS under Section 195 on a property sale by a non-resident is still calculated on the entire sale consideration, not on the capital gain. For long-term property (held over 24 months), the base rate is 12.5% following the Finance Act 2024 change from the old 20%-with-indexation regime, plus surcharge and 4% cess; for short-term property, slab rates apply. Crucially, the buyer has no way to compute your gain and no authority to deduct on it, so they withhold on the full price.

The arithmetic is brutal for the seller. On that Rs 1,50,00,000 flat, base TDS at 12.5% is Rs 18,75,000, and once you load surcharge and cess the withholding climbs higher still. Suppose the NRI's actual long-term gain on the flat is only Rs 40,00,000, because the inherited cost base was high. The true tax on that gain at 12.5% is about Rs 5,00,000 plus surcharge and cess. So roughly Rs 14,00,000 or more is withheld over and above the real liability, frozen with the government until the seller files an ITR for the year and waits for the refund to process, which realistically means the money is gone for twelve to eighteen months. You financed the exchequer's float on your own sale proceeds. The PAN-versus-TAN change does nothing to relieve this; it just makes the buyer's part of trapping your money less of a chore for the buyer.

You will also see a genuine point of confusion in the press, and it is worth being honest about it. Some reputable coverage of the Budget change still quotes the headline TDS rate as 20%, while other coverage quotes 12.5%. Both are describing the same law imperfectly. The 12.5% figure is the correct statutory base rate for long-term property after the Finance Act 2024 reform. The 20% figure is either a hangover from the pre-2024 regime or shorthand for the all-in effective withholding once the surcharge bands (10%, 15%, 25% on higher incomes) and the 4% cess are stacked on top, which on a large sale can push the effective deduction into the high teens or low twenties of percent. The practical takeaway is the same regardless of which number you read: the deduction is on the full sale value, it is large, and it will exceed your real tax unless you intervene.

The one lever that fixes the over-withholding is the same as it was before the Budget: a lower-deduction (or nil-deduction) certificate under Section 197, applied for on Form 13. With a certificate from the Assessing Officer in hand, the buyer deducts the exact amount the certificate specifies, which is computed on your real gain after exemptions, not on the gross price. On the example above, a Section 197 certificate could have authorised the buyer to deduct around Rs 5 lakh instead of Rs 18.75 lakh-plus, leaving roughly Rs 14 lakh in the seller's pocket from day one instead of in a refund queue. Budget 2026 left Section 197 entirely untouched, which means the single most valuable thing an NRI seller can do, get the certificate, is exactly as important on 2 October 2026 as it was on 30 September. The mechanics of applying are in the lower-TDS certificate guide, and they take six to eight weeks, so this is a thing you start before you have a buyer, not after.

The PAN trap that the reform does not save you from

There is a second non-obvious risk that the simpler process can actually make worse, and no one is flagging it. Because depositing TDS with a PAN now feels exactly like the resident Section 194-IA process, an inexperienced buyer (or their lawyer) is more likely than ever to reach for the wrong section entirely and deduct 1% under Section 194-IA as if the seller were a resident. That is a short-deduction. The buyer becomes an assessee in default under Section 201, personally liable for the shortfall plus interest at 1% to 1.5% per month, and exposed to penalty under Section 271C. The reform removed the TAN friction that used to force buyers to stop and realise an NRI sale was different; the smoother the process feels, the easier it is to miss that an NRI sale is taxed on a completely different basis from a resident sale.

The related trap is the PAN of the seller. If the NRI seller does not furnish a valid PAN, Section 206AA forces the buyer to deduct at 20% regardless of the actual rate or any certificate. For an NRI, the fix is simple but time-sensitive: make sure your Indian PAN is active and linked, and hand it to the buyer in writing before any payment. Put real consequence on it. On a Rs 1.5 crore sale, the gap between a correctly furnished PAN (12.5% base) and a missing PAN (20% flat under 206AA) is the difference between roughly Rs 18,75,000 and Rs 30,00,000 of base withholding, an extra Rs 11,25,000 frozen for a year purely because a ten-character number was not produced on time. The TAN change does not protect you from any of this; it removes one form and leaves every other landmine in place.

What to do for a deal closing before versus after 1 October 2026

The dividing line is the date of payment, not the date you signed the agreement to sell or the date of registration. Plan around when money actually changes hands.

For a deal where payment falls before 1 October 2026, you are on the old track and there is no point pretending otherwise. The buyer must obtain a TAN before deducting, so build the 7 to 15 day TAN timeline into your closing schedule and, for a joint purchase, remember each co-buyer needs one. The buyer deposits by the 7th of the following month, files Form 27Q for the quarter, and issues Form 16A. The single most useful thing the NRI seller can do here is get the Section 197 certificate lined up early so the buyer withholds on the gain rather than the gross, because on the old track the over-withholding and the slow refund are at their most painful.

For a deal where payment falls on or after 1 October 2026, you get the cleaner PAN-based route, but treat the simplicity as a reason to be more careful, not less. Confirm in writing that the buyer understands this is a Section 195 transaction, not a Section 194-IA one, and that they will use the PAN-based non-resident challan-cum-statement, not the 1% resident process. Furnish your active PAN before any payment to avoid the 206AA 20% trap. And still get the Section 197 certificate, because the new process changes nothing about the over-withholding on full sale value.

The hardest cases are deals that straddle the date, where you take an advance in September and the balance in October or November. Here the law applies transaction by payment: the pre-October instalments run on the old TAN-based process and the post-October instalments on the new PAN-based one, which can mean the buyer needs a TAN for the early payment and not for the later ones. If your sale is structured in instalments around the 1 October line, get a CA to map each tranche before you accept the first rupee, because mixing the two processes mid-deal is exactly the kind of error that creates a Form 26AS mismatch and a refund headache later.

Edge cases

The instalment that crosses the line. As above, TDS is triggered on payment, so a sale paid in two tranches across 1 October 2026 can legitimately use the TAN-based process for the September tranche and the PAN-based process for the November tranche. Do not assume the new rule retroactively cleans up an earlier payment.

Joint buyers and joint sellers. The old TAN pain multiplied with co-buyers, since each needed a TAN. The new PAN-based route removes that multiplication. But where there are joint NRI sellers, the gain, the certificate, and the deduction must be apportioned per seller's share; one Section 197 certificate does not automatically cover a co-owner who did not apply.

RNOR sellers. A returning NRI who is Resident but Not Ordinarily Resident is, for the purposes of an Indian property sale, still resident, so the sale falls under Section 194-IA at 1%, not Section 195. If you have moved back to India and your residential status has flipped, do not let a buyer over-deduct under 195 out of caution. Confirm your status for the relevant financial year first; see the residency rules guide for how the test works in the year of return.

Repatriating the proceeds afterwards. The cleaner TDS process helps the downstream FEMA step too, because repatriating sale proceeds out of your NRO account needs the TDS credit reflected and a CA certificate (Form 15CA/15CB). Faster Form 26AS credit under the PAN-based route means a smoother repatriation chain, but the USD 1 million per financial year NRO repatriation limit and the documentation are unchanged. The process is in the NRO repatriation guide.

Lower-deduction certificate timing around the new process. Apply for the Section 197 certificate well before payment regardless of which side of 1 October your deal falls. The certificate specifies a rate the buyer applies; under both the old and new deposit mechanisms, a certificate in hand is what converts withholding-on-gross into withholding-on-gain.

The closing read

The honest read is that this is a good, overdue fix that has been slightly oversold. Removing the TAN requirement repairs a real and frequent failure: ordinary buyers defeated by a corporate registration they needed exactly once, deals stalled, registrations slipped, and NRI sellers held hostage to a number nobody understood. That genuinely goes away for payments on or after 1 October 2026, and it will make these transactions noticeably less likely to fall apart. Credit where due.

But the change is procedural to its core. It does not lower the rate, it does not move the base from full sale value to the gain, and it does not touch the over-withholding that is the actual money problem for an NRI seller. The thing that fixes that, a Section 197 certificate on Form 13, is exactly as essential the day after the reform as the day before, and the smoother PAN-based process arguably raises the risk that a careless buyer deducts the wrong 1% resident rate and lands themselves in default.

So the recommendation for the common case is clear. If you are an NRI selling Indian property and your payment falls on or after 1 October 2026, welcome the simpler buyer process but do three things anyway: furnish your active PAN in writing before any payment to dodge the 206AA 20% trap, confirm in writing the buyer is using the Section 195 non-resident route and not the 1% resident one, and apply for your Section 197 certificate six to eight weeks ahead so your money is not frozen for a year. If your payment falls before 1 October 2026, you are on the old track, so build the TAN timeline into your closing and lean even harder on the Section 197 certificate. The exception worth naming is the instalment deal straddling the date and the RNOR seller whose status has flipped to resident; both are points to pay a CA rather than rely on a guide, this one included. The TAN headache is gone. The withholding headache is not, and only you can cure it.

Related guides

• Budget 2026: what changed for NRIs
• Selling property in India as an NRI
• TDS for NRIs and how to claim refunds
• The lower-TDS certificate (Form 13, Section 197)
• Capital gains tax for NRIs on shares and mutual funds
• NRO repatriation: process and the USD 1 million limit
• All News and analysis
• All Taxation guides
• All Investments guides

This guide is news analysis and educational in nature. It is not individual tax advice. The PAN-based TDS mechanism for NRI property sales takes effect for payments made on or after 1 October 2026, exact form numbers and procedures are being notified under the new income-tax rules and may change, and your TDS, certificate and repatriation outcomes depend on your specific dates, residency and figures, so confirm your position with a qualified chartered accountant before you transact.