Experts Urge Simplified TDS Rules for NRI Exit Barrier Ahead of Budget 2026

📅 Deadline Alert: If you sold (or plan to sell) an India home as an NRI in tax year 2026, the buyer’s TDS deposit and certificate deadlines start running immediately after payment/credit. Missing them can freeze your sale proceeds and trigger Indian interest and penalties.

As of Monday, January 19, 2026, Budget 2026 has not been presented. That means today’s TDS rules still apply, including the widely discussed NRI exit barrier—where large tax withholdings block cash for months until a refund arrives.

This matters for U.S. filers too. Many NRIs are also U.S. tax residents under the Substantial Presence Test or Green Card Test. If that’s you, the India sale may also affect your U.S. tax return for tax year 2026 (filed in 2027), including foreign tax credits and foreign asset reporting.

The IRS residency tests are explained in Publication 519.

Deadline summary: what to calendar after a 2026 India property sale

Exact due dates depend on when the buyer pays/credits the sale consideration and the TDS section used.

1) Current TDS rules for NRI property sales (and why they feel harsher)

India’s TDS rules treat resident and NRI sellers very differently.

• Resident sellers (Section 194-IA): The buyer deducts 1% TDS when the property value is ₹50 lakh or more. The buyer uses Form 26QB.
• NRI sellers (Section 195): The buyer typically must deduct TDS at higher rates and often on the full sale consideration, not just the gain.

For NRI sales, the rates commonly applied are:

• Long-term capital gains (LTCG) if holding period is more than 24 months: 12.5% base, with an effective rate up to 14.95% after surcharge and cess.
• Short-term capital gains (STCG) if holding period is 24 months or less: 20%–30% base, with an effective rate up to 31.2% after surcharge and cess.

The compliance burden also rises. Buyers often need a TAN, must deposit tax under Section 195, handle required filings, and provide the seller documentation (commonly via TDS certificates).

2) The NRI exit barrier: why liquidity gets stuck

The core problem is cash flow. TDS may be far higher than the seller’s eventual India tax on the gain. Yet the withholding is taken upfront.

That “excess” TDS can remain blocked for months. It often stays locked until the NRI files an India return and the refund is processed.

For many sellers, that delay affects reinvestment into another home, paying off loans, repatriation planning, and timing a move back to the U.S. or another country.

This is why the term NRI exit barrier has become common in property-sale planning conversations.

3) Budget 2026 reform calls from experts (not law yet)

With Budget 2026 approaching, several reforms are being discussed in the market.

• Extending a Form 26QB-style challan-cum-statement approach to NRI transactions. That would reduce compliance friction for buyers.
• Requiring 5–7 working day processing for Section 197 lower or nil withholding certificates (via Form 13).
• Allowing a provisional lower rate if the tax office misses that timeline.
• Shortening refund timelines, including proposals around 7-day processing for online applications.

These ideas are not confirmed as of January 19, 2026. Treat them as proposals, not rules.

4) Practical steps for NRIs today (before you sign the sale deed)

If you may sell in 2026, plan around the current system, not possible reforms.

1. Consider a lower or nil TDS certificate (Form 13 / Section 197). This is the main pathway to reduce withholding closer to the expected tax on gains. Processing delays are common, so start early.
2. Educate the buyer on their compliance duties. Resident buyers often only know the 1% resident-seller rule. For an NRI seller, Section 195 steps can surprise them late.
3. Track certificate issuance and portal status. Use TRACES where relevant and keep proof of deposits and certificates. Missing documentation can delay refunds.
4. For U.S. filers: plan for double-country reporting. If you are a U.S. tax resident in 2026, the India sale can be reportable on your U.S. return. Foreign tax credit rules can help, but details matter.

The IRS international landing page is a good starting point: international taxpayers. Use official IRS forms from forms and publications.

5) What Budget 2026 could mean if reforms occur

If a 26QB-like process expands to NRI sales, buyers may face fewer administrative steps. That could reduce errors and penalty exposure.

If Form 13 certificates are issued in 5–7 working days, sellers may retain far more cash at closing. That would directly reduce the NRI exit barrier.

6) Status and caveats (as of January 19, 2026)

Budget changes are not in force until announced and enacted. No official announcement confirms these TDS reforms today.

Also verify your India residential status under Section 6 (commonly, less than 182 days in India is one key condition). Residency drives which withholding path applies.

Action items to do this week

• Ask your buyer’s adviser which section applies and whether a TAN is required.
• If you want lower withholding, begin Form 13 planning early and gather gain calculations.
• Keep a document pack: sale deed, purchase proof, improvement costs, TDS challans, and TDS certificates.
• If you are a U.S. filer for tax year 2026 (filed in 2027), track India taxes paid for possible foreign tax credit and review IRS residency rules in Pub. 519.