Owning a rental property in India can be a steady source of income for NRIs, but the tax rules around it are often misunderstood and easily overlooked.
From a steep 31.2% TDS on rent to mandatory filings and complex tenant compliance, even a simple rental arrangement can turn into a tax headache if you’re not prepared.
The good news is that India’s tax laws also offer several deductions, exemptions, and DTAA benefits that can significantly reduce your actual tax burden.
In this guide, we break down how NRIs are taxed on rental income from India and share practical, legal ways to save tax while staying fully compliant.
Key Takeaway
NRIs earning rental income from India face high TDS, but with the right tax planning and compliance, a large part of this tax outgo can be optimized or reclaimed.
- Rental income for NRIs is taxed in India with a 31.2% TDS, and tenants have strict compliance obligations.
- Filing an Indian ITR is essential to claim refunds, deductions, and DTAA benefits.
- NRIs can reduce taxable income using the 30% standard deduction, home loan interest, and municipal tax deductions.
- DTAA relief and a lower TDS certificate (Form 13) can significantly improve post-tax rental returns.
How rental income is taxed for NRIs
NRIs have different tax obligations than residents when it comes to property rental income earned in India. Knowing these rules is significant to maximize your investment returns and comply with Indian tax laws.
What qualifies as rental income in India
Any income that NRIs generate from property in India belongs to the "Income from house property" category. This rule applies to both residential and commercial properties - the Income Tax Act treats them the same way. India taxes the rental income fully, regardless of where you receive or spend it.
NRI property owners need to report this income in the ITR-2 form while filing their Indian Income Tax Return. Note that "house property" includes more than just homes - it covers offices, shops, buildings, and attached land such as parking lots.
How Net Annual Value (NAV) is calculated
Net Annual Value (NAV) are the foundations of calculating your tax liability. Here's a simple breakdown:
- Calculate the Gross Annual Value (GAV) of your property
- GAV for rented properties equals the higher amount between actual rent received or expected rent
- Take away municipal taxes paid during the year from GAV
- The final figure gives you your Net Annual Value (NAV)
Let's look at an example: if your annual rent equals ₹4,80,000 and municipal taxes are ₹20,000, your NAV would be ₹4,60,000.
When and why NRIs must file ITR in India
NRIs need to file an Income Tax Return in India under several conditions. You should file if:
- Your total income (including rental income) goes beyond the simple exemption limit of ₹2.5 lakh under the old tax regime or ₹3 lakh under the new regime
- You need to claim a refund for excess TDS your tenant deducted
- You must report your rental income accurately
- You plan to carry forward any property losses
Filing an ITR lets you claim applicable deductions and possibly get tax refunds, even if your tenant has already deducted and deposited TDS.
TDS on rent for NRIs: What tenants must do
Tenants must know their tax obligations when they rent property from an NRI. The Income Tax Act sets strict rules about paying rent to NRI landlords, and breaking these rules can lead to serious problems.
TDS rate and when it applies
Section 195 of the Income Tax Act requires tenants to deduct Tax at Source (TDS) from rent payments to NRIs. The rate is 30% plus applicable cess and surcharge, which adds up to 31.2%. This TDS rule applies from the first rupee of rent paid.
The TDS rate jumps to 20% if the NRI landlord doesn't provide their PAN. NRI landlords can get a "Lower Deduction Certificate" under Section 197 to reduce their TDS rate in some cases.
Tenant's responsibilities: TAN, Form 15CA/15CB
Here's what tenants need to do when renting from NRIs:
- Get a Tax Deduction Account Number (TAN) from the NSDL website
- Take out 31.2% TDS from monthly rent payments
- Pay the deducted amount to tax authorities by the 7th of next month (30th April for March)
- Submit quarterly TDS returns using Form 27Q
- Give Form 16A (TDS certificate) to the NRI landlord within 15 days of filing returns
On top of that, tenants must fill Form 15CA online for each rent payment. Rent payments over ₹5 lakhs yearly need Form 15CB certified by a Chartered Accountant before Form 15CA submission.
What happens if TDS is not deducted properly
Not following TDS rules can cost you heavily. Tenants who skip TDS deduction must pay penalties equal to the amount they should have deducted under Section 271C. They become "assessees-in-default" and face monthly interest charges - 1% for not deducting and 1.5% for not depositing the TDS.
The penalties go beyond just money. Not paying the deducted TDS can lead to jail time under Section 276B, ranging from three months to seven years. The tax department will recover all dues from the tenant, not the landlord.
Deductions and exemptions to reduce tax
NRIs can find some good news in India's property taxation system through several deductions that substantially reduce their tax burden. These exemptions make rental income more profitable even with the high TDS rate.
Standard 30% deduction on NAV
Your Net Annual Value automatically gets a flat 30% standard deduction, whatever your actual expenses might be. Every let-out property qualifies for this deduction toward maintenance and repairs.
Municipal taxes paid
The Gross Annual Value allows deductions for all property taxes paid to local authorities. You'll get this deduction only when you've paid these taxes as the owner during the financial year.
Home loan interest under Section 24(b)
Self-occupied properties let you claim interest deduction up to ₹2 lakh annually. Rented properties offer even better benefits since you can deduct the entire interest amount without any limits. You can claim pre-construction interest in five equal annual installments once the construction is complete.
Principal repayment under Section 80C
Your home loan's principal repayment qualifies for deduction under Section 80C, up to ₹1.5 lakh annually. Just remember to keep the property for at least five years after possession to retain this benefit.
Additional deduction under Section 80EE
First-time homebuyers get an extra ₹50,000 deduction on loan interest under Section 80EE. The loan should have been sanctioned between April 2016 and March 2017. Your property value shouldn't exceed ₹50 lakh, and the loan amount must stay under ₹35 lakh.
DTAA benefits to avoid double taxation
India has agreements with more than 100 countries including the US, UK, and Australia that help prevent double taxation through DTAA. This means you can claim taxes paid in India as credit in your country of residence.
Tax-saving tips for NRIs on rental income
Smart management of your Indian rental income can reduce your tax burden and boost your returns. Here are eight practical tips to help you achieve this.
1. Apply for a lower TDS certificate (Form 13)
You can request a lower or nil TDS certificate through Form 13 on the income tax e-filing portal under Section 197. Your tenants can then deduct TDS at a reduced rate based on your actual tax liability instead of the standard 31.2%.
2. Use DTAA to claim foreign tax credit
A DTAA agreement between India and your country (over 90 countries including USA, UK, UAE) helps you avoid paying tax twice. You need to submit a Tax Residency Certificate (TRC) and Form 10F to get these benefits.
3. File ITR to claim TDS refund
Your ITR filing is essential to claim refunds for excess tax payments and report your rental income correctly, even after TDS deduction.
4. Maintain updated lease agreements
Good documentation lets you claim the right deductions and proves ownership percentage for joint properties.
5. Track Form 26AS regularly
This tax statement shows all deductions against your PAN and helps you resolve tax payments.
6. Use NRO account for rent deposits
FEMA regulations require all your rental income to go into your NRO account.
7. Deduct municipal taxes before calculating NAV
You can fully deduct municipal taxes paid to local authorities from your Gross Annual Value.
8. Consult a tax advisor for optimized planning
Expert guidance will give a compliant tax strategy, especially when you have complex DTAA claims.
Conclusion
Tax management for NRIs with Indian rental income can feel overwhelming. The 31.2% TDS rate creates a real challenge for overseas property owners. With proper knowledge of tax calculations, deductions, and filing requirements, you can create an effective rental income strategy.
Filing an ITR is crucial - not just to stay compliant but also to claim refunds on excess TDS your tenants deduct. The standard 30% deduction on NAV helps reduce your tax burden without any paperwork. You can lower your taxes even more with home loan interest deductions, especially since rented properties let you deduct the entire interest amount.
Your tenants need to know their TDS duties well. Teaching them about TAN registration, TDS deposits timing, and required forms helps both parties avoid issues down the line. The tenant bears most of the heavy penalties that come with non-compliance.
India's DTAA agreements with many countries are a great way to get tax savings. These agreements stop you from paying taxes twice on the same income. You can also apply for a lower TDS certificate using Form 13 to cut down your tax outflows right at the source.
Good documentation, on-time filing, and smart planning make tax management easier for NRIs. The tax system might look complicated, but each rule gives you a chance to save money. This piece should help you handle the Indian tax system better and boost returns on your property investments back home. Getting professional tax advice for your specific case is still a good idea.
Frequently Asked Questions
o I have to pay tax on rental income in both India and USA?
Yes, you need to report rental income in both countries, but the India-USA DTAA (Double Taxation Avoidance Agreement) ensures you don't actually pay tax twice. India has the first right to tax rental income from property located in India. You pay tax in India first (through 31.2% TDS deducted by your tenant), then report the same income on your US tax return (Form 1040 Schedule E) and claim Foreign Tax Credit for the Indian taxes already paid. This way, you effectively pay only the higher of the two tax rates, not both.
How do I claim Foreign Tax Credit in the USA for Indian rental income taxes paid?
To claim Foreign Tax Credit, file Form 1116 along with your Form 1040. First, report your Indian rental income on Schedule E (convert rupees to dollars using the RBI exchange rate on March 31st). Then complete Form 1116, selecting "Passive category income" for rental income, and report the actual tax paid in India (not the TDS amount - check your ITR to see final tax liability after any refunds).
The credit from Form 1116 reduces your US tax liability dollar-for-dollar. You'll need Form 16A (TDS certificate), your Indian ITR acknowledgment, and Form 26AS as supporting documents.
What deductions can I claim on rental income (30% standard deduction, home loan interest)?
In India, NRIs get a mandatory 30% standard deduction on Net Annual Value without any proof or receipts - this is the biggest deduction. You can also deduct the full home loan interest amount if the property is rented out (no limit), and any municipal taxes paid to local authorities.
For example, if your annual rent is Rs 6 lakh and you pay Rs 2 lakh in home loan interest, your taxable income becomes Rs 2.2 lakh (Rs 6 lakh minus 30% deduction of Rs 1.8 lakh, minus Rs 2 lakh interest). Additionally, you can claim up to Rs 1.5 lakh under Section 80C for home loan principal repayment, though this is separate from the rental income deductions.
Does my tenant need to file Form 15CA and 15CB for rent payments?
Form 15CA and 15CB are required only when rent is remitted directly to your foreign bank account or when annual rent exceeds Rs 5 lakh and is being transferred abroad.
If your tenant pays rent to your NRO account in India (which is the most common scenario), Form 15CA/15CB is technically not required under Section 195, though some banks may still request it as an internal policy. Your tenant must always deduct 31.2% TDS regardless of the amount and file quarterly TDS returns (Form 27Q), but the 15CA/15CB requirement kicks in only for cross-border payments or when a CA certificate is needed for payments exceeding Rs 5 lakh.
What is the best app for managing rental income and tax payments for NRIs?
InvestMates is built exclusively for NRIs to manage their entire India financial life in one place, including rental income tracking and tax compliance. The app helps you track monthly rent receipts, monitor TDS deductions by your tenant, calculate your actual tax liability after the 30% standard deduction and home loan interest, and reminds you of ITR filing deadlines. InvestMates also integrates with your NRO/NRE accounts to give you a complete view of your rental income, repatriation status, and helps you understand your DTAA benefits for USA tax filing.
Unlike generic accounting apps, InvestMates understands NRI-specific challenges like TDS rates, Form 15CA/15CB requirements, and FEMA compliance for fund repatriation.
How to repatriate rental income after tax deductions for NRIs?
Rental income must be credited to your NRO account in India, and you can repatriate up to USD 1 million per financial year from your NRO account to your foreign bank account, subject to proper documentation.
Your bank will require proof that taxes have been paid - typically your ITR acknowledgment, Form 26AS showing TDS deductions, and Form 15CA/15CB filed online through the Income Tax portal (Form 15CB requires a CA certificate if the amount exceeds Rs 5 lakh annually).
After deducting 31.2% TDS on gross rent, filing your ITR, and claiming any refund for excess TDS, the remaining net rental income (after all taxes) can be transferred to your NRE account or foreign bank account through normal banking channels, ensuring you maintain all documentation for FEMA compliance and potential IRS queries.
About the Author
By Prakash
CEO & Founder of InvestMates
Prakash is the CEO & Founder of InvestMates, a digital wealth management platform built for the global Indian community. With leadership experience at Microsoft, HCL, and Accenture across multiple countries, he witnessed firsthand challenges of managing cross-border wealth. Drawing from his expertise in engineering, product management, and business leadership, Prakash founded InvestMates to democratize financial planning and make professional wealth management accessible, affordable, and transparent for every global Indian.
