The Central Board of Direct Taxes (CBDT) has issued a significant clarification aimed at simplifying tax compliance for individuals and Hindu Undivided Families (HUFs) purchasing immovable property from Non-Resident Indians (NRIs). The new directive allows such buyers to deduct and deposit Tax Deducted at Source (TDS) by quoting their Permanent Account Number (PAN) instead of the previously mandatory Tax Deduction and Collection Account Number (TAN), provided they are not otherwise required to obtain a TAN.

This clarification primarily addresses deductions under Section 195 of the Income Tax Act, 1961, which governs payments to non-residents, including proceeds from property sales. Historically, any person responsible for deducting tax under this section was also required to obtain a TAN, as per Section 203A of the Act. This mandate presented a significant compliance burden for individual buyers who engage in a property transaction with an NRI, as obtaining a TAN typically involves a separate application process, even if it was for a single, non-recurring transaction.

The new guideline provides much-needed relief by stating that individual and HUF buyers, who are not subject to tax audit under Section 44AB of the Income Tax Act and are not otherwise obligated to obtain a TAN for other business or professional activities, can now proceed with TDS deduction using their PAN. This move is expected to streamline the process for numerous occasional property buyers across India.

Key details of the clarification include:

  • Scope: Applies to individuals and HUFs purchasing immovable property from NRIs.
  • Condition: The buyer must not be otherwise required to obtain a TAN under existing income tax provisions. This typically covers individuals or HUFs who do not engage in business or professional activities necessitating TAN.
  • Procedure: Buyers can deduct TDS and deposit it by quoting their own PAN. The Permanent Account Number (PAN) of the NRI seller remains essential for the transaction and for linking the deducted tax to the seller's income.
  • Form Submission: The TDS is to be deposited using Form 27Q, which is the prescribed form for TDS on payments made to non-residents. The form requires the PAN of both the deductor (buyer) and the deductee (NRI seller).

This regulatory adjustment by the CBDT is a step towards easing the compliance burden and promoting transparency in property transactions involving non-residents. The previous requirement often led to delays and complexities for individual buyers unfamiliar with the intricacies of corporate tax compliance. By substituting the TAN requirement with PAN for specific categories of buyers, the government aims to reduce bureaucratic hurdles and foster a more accessible environment for property dealings.

The clarification is expected to benefit a segment of the real estate market where individuals and HUFs frequently interact with NRIs for property acquisitions. It underscores a broader governmental effort to simplify tax procedures for common taxpayers, aligning with the objective of enhancing the ease of doing business and financial transactions within the country. While the exact date of the circular or notification was not immediately specified, the clarification marks a recent development providing immediate relief to potential property buyers.