India–EU Free Trade Agreement 2026 - The Mother of All Deals That Redefines India’s Economic Landscape

 By CA Surekha S Ahuja

“Some deals change trade. This deal changes how trade is earned.”

The India–EU Free Trade Agreement of 2026 is not just a commercial treaty.
It is a structural rewrite of India’s growth imperative — transforming the rules of engagement for exporters, investors, tax policy, and compliance frameworks.

This is why it truly deserves the title:
The Mother of All Deals.

A Shift from Market Access to Market Eligibility

India already traded with the European Union. The fundamental transformation in this agreement is not who India can sell to — but under what conditions those sales will succeed.

For the first time, India has entered a trade framework where:

• Market access is conditional, not automatic

• Compliance is permanent, not transitional

• Institutional capability determines competitiveness

• Informality loses its economic edge

This agreement is not liberalisation in the conventional sense — it is institutional integration.

From Tariff Reduction to Rule Adoption

Tariffs are visible. Rules are decisive.

Under the FTA, India accepts European frameworks for:

• Carbon pricing and reporting (CBAM)

• Sustainability and traceability

• Technical standards and product compliance

• Service and IP linkage in cross-border trade

In practical terms:

Old Model	New Model
Trade driven by price	Trade driven by credibility
Tariff preference	Standard & compliance preference
Cost arbitrage	Institutional performance

Access to the EU market no longer depends primarily on duty elimination — it depends on institutional discipline.

Growth Is Selective, Not Universal

This is the first FTA where the Government has effectively signalled which parts of India’s economy will benefit most. Growth under this pact will be concentrated where:

• Industrial ecosystems already exist

• Compliance systems are scalable

• Value-added and documented output is trackable

States with established manufacturing bases are poised to accelerate exports.
Clusters with informal production face pressure to formalise or fade away.

This is not bias.
It is economic selection.

Compliance as a Core Economic Input

Access to EU markets embeds permanent compliance costs:

• Mandatory carbon and energy audits

• ESG disclosures and reporting systems

• Stringent traceability and quality certification

These costs are not proportional to scale — they are fixed inputs.

Implications:

• Large, structured exporters absorb these costs

• Small, informal exporters confront margin compression

• Export activity consolidates around compliant entities

This agreement does not punish MSMEs — it filters them.

Taxation Shifts from the Border to the Balance Sheet

As customs tariffs fall, the tax system’s role changes fundamentally.

Under the FTA:

• GST refund velocity becomes a business variable

• Administrative delays can negate duty benefits

• Export profitability becomes sensitive to domestic processes

Key Insight:
If tax administration remains slow or unpredictable, tariff relief becomes irrelevant.

Section 195 Withholding — A New Trade Cost

EU trade is service-embedded:

• Design

• Engineering

• Technology

• Licensing

• Intellectual property

Cross-border services and royalty payments will increase sharply.

Without procedural reform:

• Excess withholding becomes the default

• Treaty relief becomes dispute exposure

• Cash gets locked in compliance friction

In a rules-based trade environment, withholding inefficiency is economic inefficiency.

Family Businesses at an Institutional Crossroads

EU capital is not relationship-driven — it is governance-driven.

Family enterprises structured around:

• Informal ownership

• Ad-hoc valuations

• Unclear succession

• Weak documentation

will struggle under EU due diligence standards.

This agreement raises the bar:
Internationalisation now mandates institutionalisation.

Short-Term Trade Deficit — A Structural Phase, Not a Failure

In the initial years:

• Imports of EU machinery and high-value inputs will rise faster than exports

• Trade deficits may widen temporarily

This is not a flaw — it is the investment phase of the agreement.

Productivity gains and export scale will follow, but only for firms that can execute under the new regime.

Budget 2026 — The Real Execution Framework

The FTA creates opportunity.
Budget 2026 decides who can genuinely benefit from it.

This Budget must enable:

• Time-bound GST refunds

• Section 195 procedural clarity

• CBAM compliance as export infrastructure

• FEMA predictability for valuation and capital flows

Future budgets will no longer be mere fiscal roadmaps — they will be FTA execution blueprints.

Closing: Why This Deal Will Define India’s Economic Trajectory

The India–EU Free Trade Agreement does not promise growth.
It conditions growth.

Prepared firms will scale.
Efficient states will accelerate.
Informal structures will exit.
Compliance will become a competitive lever.

This agreement will not expand India’s economy by default.
It will decide who participates in India’s global economic expansion.

That is why it is not just a deal — it is transformational.

NRI Import-Export Business Blueprint 2026: Compliance, Structure, and Operational Mastery

 By CA Surekha S Ahuja

Sustainable business begins with clarity, structure, and disciplined compliance. For NRIs, understanding the legal landscape is the first step toward global trade success

Introduction

NRIs seeking to venture into import-export of spices, goods, or services in India face unique regulatory challenges. FEMA restricts sole proprietorships for NRIs, and operational clarity is vital for banking, taxation, and audit compliance. Choosing the right business structure and following statutory obligations ensures legal safety, smooth operations, and unhindered repatriation of profits.

This guidance integrates entity choice, statutory compliance, FEMA and GST regulations, licensing, banking, risk mitigation, and operational best practices, providing a complete blueprint for NRI exporters.

Optimal Business Structure for NRIs

Entity Type	NRI Ownership	Compliance Complexity	Key Advantages	Risks / Hardships
Private Limited Company	100% (1 Indian director required)	Moderate	Limited liability, full FEMA compliance, bankable, internationally credible	ROC and FLA filings, maintaining statutory records
LLP	100%	High	Limited liability, operational flexibility	RBI manual approval, reduced bank credibility, MCA filings mandatory
Partnership / PoA-based	Indirect	High	Fast domestic setup	Unlimited liability, FEMA complexity, NRI control indirect, bank financing difficult
Sole Proprietorship / PoA	Not allowed	Very High	Minimal setup	Illegal for NRIs, FEMA violation, banking and repatriation impossible

Analysis: For NRIs, a Private Limited Company offers the most balanced combination of control, compliance, credibility, and operational efficiency. LLPs may suit smaller operations but involve manual approvals and limited bank credibility. Partnerships or PoA-based setups introduce liability and compliance risks, while sole proprietorships are prohibited.

Incorporation & FEMA Compliance

• File SPICe+ for Pvt Ltd incorporation, appointing 2 directors (NRI + Indian resident).

• Submit attested passport, PAN, and Aadhaar of all directors.

• Authorized capital: ₹1 lakh minimum; paid-up capital as per business need.

• File FC-GPR with RBI within 30 days post-incorporation for share allotment.

• Repatriation of profits via Form 15CA/CB.

• Annual FLA return due July 15.

Maintaining a dedicated NRE account ensures clear audit trails and compliance with FEMA.

Trade Compliance Requirements

NRIs must comply with sector-specific and trade-related regulations:

• IEC Registration with DGFT – mandatory for all import-export activities.

• GST Registration for turnover exceeding ₹20 lakh or interstate trading.

• FSSAI License (Form B) for spices and food exports.

• APEDA Registration for agri-related exports.

• RCMC Registration for export benefits and incentives.

• Sector-specific licenses as applicable for goods and services exports.

Professional Insight: Even for non-food goods or services, regulatory approvals and licenses are mandatory to avoid export restrictions, audit issues, or penalties.

Banking and Forex Compliance

• Maintain an NRE current account exclusively for business transactions.

• Record all import, export, and payment transactions through banking channels.

• Hedge foreign currency exposure using forward contracts or forex instruments.

• Ensure repatriation of profits complies with RBI Form 15CA/CB and FEMA regulations.

GST & Export Documentation

• File GSTR-1 and GSTR-3B monthly.

• Conduct quarterly export reporting linked with IEC.

• Reconcile GSTR-2A to match input tax credits with vendor invoices.

• File LUT for zero-rated GST benefits.

• Maintain e-way bills for interstate goods movement.

For services exports, invoice, payment, and GST documentation are equally critical for compliance.

Documentation and Record-Keeping

Maintain complete and verifiable records:

• Tax invoices, bank statements, and stock registers.

• Certificates from FSSAI, APEDA, and RCMC.

• GST reconciliations and export LUTs.

• Vendor agreements and verification documents.

Retention: Minimum of eight years to comply with Income Tax, GST, and FEMA auditing standards.

Risk Mitigation

Anticipate operational risks and implement preventive measures:

• Pre-shipment lab tests to prevent FSSAI/APEDA license rejection.

• LUT filing and invoice reconciliation to avoid GST input blockage.

• Accurate FC-GPR and FLA filing to prevent FEMA non-compliance penalties.

• Verified suppliers and contractual agreements to mitigate vendor default risk.

• Licensed CHAs and complete documentation to reduce port and customs delays.

• Hedge foreign exchange exposure to protect profitability.

Analysis: Proactive risk management ensures operational continuity and protects profit repatriation.

Statutory Filing Calendar

• Monthly: GSTR-1, GSTR-3B, bank reconciliation.

• Quarterly: IEC export reporting.

• Annual: ROC filings, FLA return, ITR-6, FSSAI license renewal.

Adherence to statutory deadlines ensures uninterrupted operations and avoids regulatory scrutiny.

Mandatory Precautions for NRIs

• Appoint a competent Indian resident director for statutory compliance.

• Conduct all transactions via banking channels; avoid cash dealings.

• Perform mandatory lab testing for food consignments.

• Complete GST reconciliation and LUT filing monthly.

• Ensure APEDA/RCMC registration before initiating exports.

• Timely submission of FEMA returns.

• Avoid sole proprietorships or informal structures.

For non-food goods and services, ensure all sector-specific compliance is maintained.

"A structured business, disciplined compliance, and meticulous documentation are the cornerstones of sustainable NRI export success. When these pillars are firmly in place, growth is legal, secure, and globally credible."

Purchase Genuineness under the Income-tax Act: Bills and Bank Payments Are Legally Sufficient

 By CA Surekha S Ahuja

The Principle of Evidence Over Suspicion

In income-tax assessments, Assessing Officers often question purchases, demanding vendor bank statements or income-tax returns, even when the assessee has produced tax invoices and paid through banking channels. Such demands go beyond the statutory framework.

The law, as repeatedly held in judicial decisions, prioritizes primary evidence under the control of the assessee. Suspicion or conjecture cannot substitute proof. As the Supreme Court held in ITO v. Lakhmani Mewal Das [1960] 37 ITR 37 (SC):

“The conclusions of the Assessing Officer must have a rational connection with the material on record and not be based on mere suspicion, gossip or conjecture.”

This principle forms the cornerstone of purchase verification.

Section 68: Limited Scope

Section 68 applies to unexplained credits. Purchases, being expenditure entries, do not create credit in favor of the assessee. Judicially, it has been held that an expenditure supported by invoices and bank payments cannot be recharacterized as cash credit merely because the supplier’s credentials are questioned.

Interpretation: Section 68 is irrelevant to genuine purchase transactions, and additions on this basis are jurisdictionally flawed.

Section 69C: Explaining the Source of Payment

Section 69C allows disallowance only where the source of expenditure remains unexplained.

• Payment via disclosed bank accounts, recorded in books of account, fully satisfies the provision.

• The Act does not require the assessee to establish the financial compliance of vendors or their banking operations.

Judicial support: Tribunals have consistently held that vendor ITRs or bank statements are not required. Only when AO can independently establish accommodation entries does Section 69C become relevant.

Primary Evidence and Burden of Proof

The assessee’s obligation is confined to producing:

• Tax invoices

• Bank payment proofs (RTGS/NEFT/cheques)

• Books of account and stock registers

Once submitted, the burden shifts to the Assessing Officer to establish non-genuineness. Courts, including in CIT v. Paval D. Pereira, have held that the assessee cannot be required to prove facts beyond their knowledge or control.

Vendor Records Are Beyond Assessee’s Control

Vendor bank statements and ITRs belong to third parties. There is no statutory requirement for the assessee to obtain or produce them. Adverse inferences cannot be drawn for their absence.

Judicial support:

• N.D. Radha Kishan & Co. (ITAT Delhi) – AO cannot disallow purchases for non-production of vendor documents.

• PCIT v. Kanak Impex (Bombay HC) – AO must independently verify suppliers; the assessee is under no obligation to produce vendor records.

Independent Inquiry Is the AO’s Duty

Where doubts arise, the AO must:

• Conduct independent verification, including issuing notices under Section 133(6)

• Collect affirmative evidence of accommodation entries

Suspicion alone cannot sustain additions. As the Supreme Court emphasized in Lakhmani Mewal Das:

“Additions must have a rational nexus with the material on record; suspicion or conjecture is legally insufficient.”

Acceptance of Stock, Sales, and Gross Profit

Courts have repeatedly held that when:

• Sales are accepted

• Stock registers reconcile

• Quantitative tallies match

• Gross profit aligns with historical norms

Full disallowance of purchases is impermissible. At most, estimation of the profit element may be considered.

Judicial support: PCIT v. Akshay Developers (Gujarat HC) – Wholesale rejection of purchases is legally untenable when stock and trading results are accepted.

Positive Evidence Required for Alleging Bogus Purchases

Allegations of bogus purchases must be supported by tangible evidence, such as:

• Identification of entry operators

• Circular fund movement

• Cash backflow or non-existent stock

In the absence of such material, any addition is purely conjectural and unsustainable.

Best Professional Practices for Assessees

• Maintain complete invoices for every purchase.

• Ensure payments via banking channels with clear records.

• Maintain stock registers and quantitative reconciliations.

• Retain GST compliance evidence, including e-way bills and GSTR reconciliation.

• Respond to notices with primary evidence first, and if AO doubts remain, request independent verification of suppliers.

These steps are legally sufficient, reduce dispute risk, and align with judicial standards.

Settled Legal Position

The consolidated legal position from statutory interpretation and judicial precedents is:

• Section 68 does not apply to purchases.

• Section 69C is satisfied once source of payment is explained.

• Invoices + bank payments fully discharge the assessee’s onus.

• Vendor statements/ITRs are not required.

• AO must conduct independent inquiry.

• Acceptance of stock and sales precludes full disallowance.

• Positive evidence is mandatory to sustain any allegation of bogus purchases.

Judicial anchor: ITO v. Lakhmani Mewal Das [1960] 37 ITR 37 (SC)

“The conclusions of the Assessing Officer must have a rational connection with the material on record and not be based on mere suspicion, gossip or conjecture.”

Once invoices, banking payments, and books are produced, any addition based solely on non-furnishing of vendor records is legally unsustainable.

Part 2: Hotel OTA Compliance – Visual SOP for Practical Implementation

 By CA Surekha S Ahuja

While Part 1 of this series provided a 360° legal, tax, and compliance framework for hotels handling OTA bookings, Part 2 translates that framework into a practical, operational SOP for finance, accounting, and compliance teams.

This SOP is designed to simplify the application of TDS, GST, Equalisation Levy (EL), and documentation requirements, enabling hotels to manage domestic and international bookings confidently and audit-proof.

OTA Transaction Flow – Visual Overview

Bookings via OTAs can follow several models:

• Merchant Model: OTA collects payments, remits net amount to hotel

• Agency Model: Customer pays hotel directly; OTA earns commission

• Hybrid / Partial Collection: OTA and hotel split collection responsibilities

• Referral / Network Model: OTA provides leads; hotel collects payment; OTA earns brokerage

Each model has distinct compliance implications for TDS, EL, and GST.

Visual SOP – Pencil Sketch:

This hand-drawn flowchart illustrates payment flows, tax responsibilities, and document loops for different OTA models.

Decision Matrix: TDS, EL, and GST

Scenario	OTA Model	TDS	EL	GST
Indian OTA, Merchant Model	Merchant	No TDS	No EL	GST on room + commission; ITC claimable on commission
Foreign OTA, Merchant Model	Merchant	No TDS	EL 2%	GST 18% RCM on commission; ITC claimable
Customer pays Hotel directly	Agency	194H / 195 on OTA commission	EL 2% if foreign OTA	GST 18% on commission; RCM if foreign OTA
Hybrid / Split Collection	Hybrid	TDS on OTA portion	EL 2% on foreign OTA commission	GST split per portion

This matrix simplifies decision-making for each booking scenario, ensuring correct tax treatment and audit readiness.

GST Implications (Updated Post September 2025)

Supply	GST Rate	ITC
Room tariff ≤ ₹7,500	5%	No ITC
Room tariff > ₹7,500	18%	ITC Allowed
Indian OTA Commission	18%	ITC Claimable
Foreign OTA Commission	18% RCM	ITC Claimable (subject to rules)

Key Points:

• ITC is blocked for rooms taxed at 5% without ITC

• For mixed-supply hotels, apportion ITC based on room tariffs

• Foreign OTA commissions under RCM require monthly GST payment and ITC claim tracking

Monthly Compliance Checklist

Task	Responsible	Evidence / Docs
Reconcile OTA settlements	Accounts	OTA statements
Verify TDS 194-O / 194H / 195	Accounts	Form 26AS / AIS
Deposit EL 2% (foreign OTA)	Accounts	EL challan, Form 1
Pay GST on room & commission	Accounts	GST invoices, GSTR-3B filing
Collect PE declaration	Accounts / Legal	Annual PE declaration
Maintain audit file	Accounts / Legal	Agreements, invoices, settlements, bank advices

Following this checklist ensures timely reconciliation, correct tax payments, and audit-readiness.

Documentation Tracker – Key Records

Hotels must maintain the following critical compliance documents:

• OTA agreements with model specified

• Commission invoices and settlement statements

• TDS certificates (if applicable)

• EL challans and Form 1 (foreign OTA)

• GST invoices and RCM computations

• Bank remittance proofs for cross-border payments

Proper documentation reduces audit risk, supports ITC claims, and ensures FEMA compliance.

Using the SOP

1. Identify the OTA Model for each booking

2. Follow the flowchart to map each transaction to TDS, EL, and GST obligations

3. Consult the decision matrix for precise tax treatment

4. Apply the GST table for room tariffs and OTA commissions

5. Run the monthly compliance checklist for reconciliation and tax payments

6. Maintain the documentation tracker for audit and FEMA readiness

Outcome: Hotels applying this SOP can manage all domestic and international OTA bookings effectively, ensuring compliance while reducing audit and regulatory risk.

Guidance note on 360° Tax, GST, and Equalisation Levy Compliance for Hotels for domestic and cross border

By CA Surekha S Ahuja

 For Domestic and Cross-Border OTA Bookings

Applicable for AY 2026-27 | FY 2025-26

Prepared for: Indian Hotels receiving bookings via Indian or Foreign OTAs, and Foreign Hotels receiving Indian customer bookings.

Objective

Hotels operate at the intersection of Income-tax, GST, Equalisation Levy (EL), and FEMA. Misinterpretation of transaction flows can trigger:

• TDS disputes

• GST mismatches or RCM failures

• EL issues

• FEMA / remittance complications

This guidance provides a complete, audit-ready, and publication-ready framework for hotels to manage all compliance aspects end-to-end, including cross-border scenarios, documentation requirements, and remedies.

Classification of OTA Transactions (Hotel Perspective)

Correct classification is the first step for compliance. Each transaction must be classified along three axes:

Axis	Categories
Hotel Location	Indian / Foreign
OTA Location	Indian / Foreign
Commercial Model	Merchant (collects money), Agency (Pay at Hotel), Hybrid / Partial Collection, Referral / Network

Compliance outcomes flow directly from this classification.

Commercial Models & Compliance

Merchant Aggregator Model (OTA collects money)

• Examples: MakeMyTrip Prepaid, Agoda Prepaid, Expedia Collect

• Flow: Customer → OTA → Hotel

• Income-tax: OTA deducts TDS @1% u/s 194-O on gross booking; hotel claims TDS credit. EL does not apply if OTA is Indian.

• GST: See updated GST implications below.

• Documentation: OTA agreement, settlement statements, GST invoices, Form 26AS / AIS.

• Audit Tip: Reconcile monthly; maintain separate ledgers for gross revenue and commission.

Agency Model (Customer pays hotel directly)

• Examples: Booking.com Pay at Hotel

• Flow: Customer → Hotel → OTA commission invoice

• Income-tax: TDS on commission: 194H (Indian OTA) / 195 (Foreign OTA with PE). EL @2% applies if foreign OTA without PE.

• GST: See updated GST implications below.

• Documentation: OTA agreement, commission invoice, EL challan (if foreign OTA), bank remittance proof.

Hybrid / Partial Collection Model

• Split collection between OTA and hotel; apply 194-O only on OTA-collected portion; TDS/EL on commission; GST split per revenue portion.

• Documentation: OTA statements with split collection, GST invoices, reconciliation.

Referral / Network Model

• OTA provides leads; hotel collects payment. OTA income treated as commission or brokerage; TDS applies (194H / 195 or EL). GST on commission (RCM if foreign).

Equalisation Levy (2% on Foreign OTA Commission)

Applicability Conditions (All must be satisfied):

• OTA is non-resident

• Provides e-commerce supply/facilitation

• Receives consideration from Indian hotel

• No PE in India

• Transaction not taxable under Income-tax Act

Threshold: OTA total Indian receipts > ₹2 crore. Hotels do not test the threshold.

Procedural Steps for Hotels:

• Compute 2% EL on gross commission

• Deposit by 7th of next month

• File annual statement (Form 1)

• Maintain challans and settlement statements

Audit Risk: Non-payment → expense disallowance u/s 40(a)(ib).

EL vs TDS: TDS u/s 195 is not applicable if EL applies.

Hotel safeguard: Obtain annual PE declaration from foreign OTA.

Updated GST Implications (Post September 2025 Reforms)

The GST rates and ITC availability for hotels were updated by the GST Council in September 2025:

Room Tariff GST

Room Tariff (per room per day)	GST Rate	ITC Available?
≤ ₹7,500	5%	No ITC
> ₹7,500	18%	ITC Allowed

Key Points:

• ITC is blocked for supplies taxed at 5% without ITC, e.g., rooms ≤ ₹7,500.

• For mixed supplies, ITC must be apportioned based on actual supplies (Rules 42–43, CGST Rules).

• GST on restaurant or banquet services may differ depending on premises and service type, typically 18% with ITC.

OTA Commission

Payment Type	GST Treatment	ITC Position
Commission by Indian OTA	GST charged by OTA (18%)	ITC Claimable
Commission to Foreign OTA	GST under Reverse Charge @ 18%	ITC Claimable

Practical Notes:

• GST under RCM on foreign OTA commissions must be paid monthly.

• ITC on RCM payment can be claimed if the input is used for business and not blocked under Section 17(5).

Cross-Border Booking Scenarios

Scenario	OTA	Customer	Hotel Exposure	TDS / EL / GST
Indian Hotel + Foreign OTA	Non-resident	Domestic / Foreign	Pay commission	EL 2%; No TDS; GST RCM on commission
Indian Hotel + Indian OTA	Resident	Domestic / Foreign	Receives gross booking	TDS 194-O @1%; GST as above; No EL
Foreign Hotel + Indian OTA	Resident	Domestic	Commission received	TDS 194H / 195; GST on commission; EL not applicable
Foreign Hotel + Foreign OTA	Non-resident	Domestic / Foreign	Commission received	No TDS/EL in India; GST outside India

Documentary Requirements – Hotel-Centric

Income-tax / TDS / EL

• OTA agreements with model specification

• PE declaration (foreign OTA)

• Commission invoices

• TDS certificates (if any)

• EL challans and Form 1

• Settlement statements / bank advices

GST

• Hotel tax invoices (room tariff)

• OTA commission invoices

• RCM computations (foreign OTA)

• Monthly reconciliation and GSTR-1 / 3B compliance

FEMA / Banking

• FIRCs / bank advice for foreign remittance

• Purpose code declaration

• Agreements submitted to bank for validation

Common Errors & Remedies

Error	Correct Treatment / Remedy
Applying TDS 195 on EL-applicable payment	Pay EL 2% only; TDS not required
Netting commission from revenue	Record gross revenue and commission separately
Ignoring GST on RCM on foreign OTA commission	Pay GST under RCM, maintain ITC records
Missing PE declaration	Obtain declaration annually; preserve for audit

Audit and Assessment Defense

Maintain a comprehensive compliance file:

• OTA agreements with model description

• PE declarations

• EL computations & deposit proofs

• TDS certificates / Form 26AS / AIS

• GST invoices & reconciliation

• Bank remittance proofs

• Settlement statements

This resolves most 142(1) notices, audit queries, and EL disputes.

Key Judicial and Regulatory References

• Section 194-O – E-Commerce TDS obligations

• Section 165A / Equalisation Levy – 2% on foreign OTA commission

• CBDT Circular 715 – Clarification on hotel payments under 194I / 194C

• DTAA Article 7 – Business profits of foreign OTA without PE

• East India Hotels Ltd v. CBDT (1994) 209 ITR 854 (Bom) – Hotel services not “work” for 194C

360° Compliance Takeaways

• Identify the OTA model correctly

• Apply TDS, EL, GST per model precisely

• Maintain gross revenue separate from commission

• Reconcile monthly

• Preserve all documentation (agreements, PE declarations, invoices, settlements, FIRCs)

• Maintain an audit-proof compliance file at all times

Hotels following this framework are fully protected from TDS disputes, EL assessments, GST mismatches, and FEMA scrutiny.

NRI Property Sales 2026 – Lower TDS Certificate & India-US Investment Advisory

 By CA Surekha S Ahuja

Introduction: The 2026 NRI Property Landscape

As 2026 unfolds, NRIs face a transformed taxation and investment environment for Indian property sales:

• Finance Act 2025: LTCG at 12.5% without indexation, or 20% with indexation for pre-July 2014 properties.

• Section 195 TDS remains a key liquidity issue: buyers must deduct TDS on gross sale proceeds, potentially locking up significant funds.

• US-resident NRIs must consider PFIC taxation, impacting Indian mutual fund investments.

Critical questions for NRIs:

1. Should I obtain a Lower TDS Certificate (Form 13)?

2. How do PAN, Aadhaar, and residential status affect TDS and refunds?

3. Should I reinvest in India or repatriate to the USA?

This guidance note provides a 360-degree roadmap for NRI sellers.

Lower TDS Certificate (Form 13) – Strategic Cash Flow Management

Why Form 13 Matters

• Buyers deduct TDS on total sale value without a certificate.

• With Form 13, TDS is restricted to actual capital gains, often much lower than gross sale value.

• Protects liquidity and blocked capital, especially for high-value sales.

Decision Matrix – When to Apply Form 13

Scenario	Standard TDS (No Certificate)	Form 13 – Lower TDS Certificate	Recommendation
High-cost property, small gain	TDS ~20–24% of total sale	TDS only on gains (0–12.5%)	No-brainer – Apply Form 13
Reinvestment under Sec 54/54EC	Funds blocked 12–18 months	TDS can be reduced to 0%	Apply Form 13
Pre-2014 property	Buyer deducts 20% on gross	AO applies lower of 12.5%/20% with indexation	Apply Form 13
Urgent sale / time-critical	Delays certificate issuance	2–4 weeks wait	Consider skip and claim refund later
Small-ticket sales (<₹25L)	TDS impact low	Certificate cost may exceed blocked interest	Skip if minimal financial impact

New TDS Rates for NRI Property Sales (2026)

Gain Type	Sale Value	Base Rate	Surcharge	Cess	Effective TDS
LTCG	≤₹50L	20%	Nil	4%	20.8%
LTCG	₹50L–₹1Cr	20%	10%	4%	22.88%
LTCG	>₹1Cr	20%	15%	4%	23.92%
STCG	Any	30%	10–15%	4%	31.2–35.88%

Key insight: Form 13 reduces TDS from gross sale value to actual gains, releasing trapped capital immediately.

PAN, Aadhaar & Residential Status – Compliance Imperatives

• PAN: Mandatory; absence triggers Section 206AA, higher TDS

• Aadhaar: Optional but speeds up Form 13 issuance and refunds

• Residential Status: NRIs and RNORs fall under Section 195, not 194-IA

Implications: Proper documentation ensures minimal blocked funds, faster refunds, and smoother repatriation.

Buyer-Facing Compliance Advisory

• Verify seller PAN and documentation

• Request Form 13 for high-value/complex sales

• Collect proof for Sec 54/54EC reinvestments

• Ensure AO applies pre-2014 indexation benefits

• Monitor TDS compliance and timelines

Consequences of non-compliance: penalties, delays, or buyer liability issues.

Repatriation & US-NRI PFIC Advisory

FEMA-Compliant Repatriation

• Limit: USD 1 million per financial year from NRO account

• Requires Forms 15CA & 15CB

• Excess TDS cannot be repatriated until refund is processed

US-NRI Considerations

• Indian Mutual Funds = PFICs, subject to punitive US taxation

• Prefer Direct Equities, PMS, or AIFs

• Plan globally: minimize PFIC exposure, optimize liquidity, and align with US tax rules

India vs. USA – Investment Verdict

Factor	India (Growth)	USA (Safety)
Economy	Fastest-growing large economy	Stable S&P 500, predictable returns
Currency	INR resilient	USD strong (₹90+), hedge volatility
Tax	Complex TDS + ITR	Simpler US tax compliance
Investment	Direct equity, PMS, AIF, commercial real estate	US ETFs, retirement funds

Strategic Recommendation:

• Aggressive (<50, Indian tax resident): Retain proceeds in India; invest in direct equity or commercial property

• Conservative / US-tax resident: Use Form 13, repatriate under FEMA, invest in US-based instruments, avoid PFICs

Common Myths – Debunked

Myth	Reality
TDS = 1%	Only for residents (194-IA). NRIs under 195 = 20–24%
TDS is final tax	Must file ITR to claim refund / pay balance
Repatriation is immediate	Excess TDS waits for refund cycle; USD 1M/year cap
Indian Mutual Funds safe	PFIC rules apply; punitive US tax

Actionable NRI Seller Plan (2026)

1. Confirm residential status, PAN, Aadhaar

2. Compute capital gains (LTCG/STCG)

3. Decide reinvestment vs. exit

4. Apply Form 13 if blocked funds > 15–20% of gains

5. Ensure buyer TDS compliance

6. Plan FEMA-compliant repatriation (USD 1M limit)

7. For US-residents, avoid PFIC exposure; prefer direct equity/US ETFs

Principle: Cash flow, liquidity, and compliance are as critical as tax optimization. Form 13 is a strategic liquidity tool, not just a compliance form.

Final Takeaway

In 2026, NRI property sales require:

• Strategic use of Form 13 to release blocked capital

• PAN/Aadhaar and residential compliance

• Informed decisions on reinvestment vs repatriation

• Awareness of US-PFIC implications for cross-border investors

Proper planning ensures your wealth works for you, not the tax authorities.