How NRIs are Taxed on Rental Income from India? With Tax Saving Tips

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.

The Income-tax Act, 2025 came into force on 1 April 2026. Unless stated otherwise, the section and form numbers in this guide are those under the Income-tax Act, 1961, which apply to FY 2025-26 and earlier years. The new section and form numbers for TDS on rent are listed in the TDS section below.

🟢 Please Note: Form 26AS is being renamed to Form 168 from Tax Year 2026-27, learn what changes and when it applies to you in our Form 168 guide

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:

1. Calculate the Gross Annual Value (GAV) of your property
2. GAV for rented properties equals the higher amount between actual rent received or expected rent
3. Take away municipal taxes paid during the year from GAV
4. 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. After the 30% standard deduction of ₹1,38,000, your taxable income from this property is ₹3,22,000, before any home loan interest deduction. This amount is added to your other Indian income and taxed at your slab rates. Your tenant will already have deducted TDS of ₹1,49,760 (31.2% of ₹4,80,000), so if your final tax on this income is lower, for example because your total Indian income is below the basic exemption limit, filing an ITR lets you claim the difference back as a refund.

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 ₹4 lakh under the new regime (from FY 2025-26)
• 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, 1961 requires tenants to deduct Tax at Source (TDS) from rent payments to NRIs. The rate is 30% plus 4% health and education cess, which works out to 31.2%, and surcharge is added on top where the rent paid or likely to be paid in the year exceeds ₹50 lakh. There is no minimum threshold: this TDS rule applies from the first rupee of rent paid.

For rent paid on or after 1 April 2026, the Income-tax Act, 2025 applies. TDS on rent paid to an NRI then falls under section 393(2) (Table, serial number 17) at the rates in force, the tenant's quarterly TDS return is Form 144 (earlier Form 27Q), and the TDS certificate is Form 131 (earlier Form 16A).

If the NRI landlord does not give the tenant a PAN, Section 206AA requires TDS at the highest of the rate in the Act, the rate in force, or 20%. Because the rate on rent paid to an NRI is already above 20%, a missing PAN does not lower it, and the 31.2% rate still applies. 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:

1. Get a Tax Deduction Account Number (TAN) from the NSDL website
2. Take out 31.2% TDS from monthly rent payments
3. Pay the deducted amount to tax authorities by the 7th of next month (30th April for March)
4. Submit quarterly TDS returns using Form 27Q (Form 144 for TDS deducted from 1 April 2026)
5. Give the TDS certificate, Form 16A (Form 131 for TDS deducted from 1 April 2026), to the NRI landlord within 15 days from the due date for filing the quarterly return

On top of that, when rent is remitted to the NRI landlord outside India, the tenant must file Form 15CA online before the remittance. If the rent remitted is chargeable to tax and exceeds ₹5 lakh in the year, Form 15CB, a certificate from a Chartered Accountant, is needed first, unless a certificate from the Assessing Officer has been obtained. For remittances from 1 April 2026, these forms are Form 145 (earlier Form 15CA) and Form 146 (earlier Form 15CB).

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.

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)

On a self-occupied property, the old tax regime allows an interest deduction of up to ₹2 lakh a year. A rented-out property is treated more generously: you can deduct the entire interest against the rent, with no cap. If that creates a loss, the old regime lets you set up to ₹2 lakh of it against other income each year and carry the rest forward for eight years, while the new regime still allows the interest deduction against rent but does not let the loss reduce your other income.

Principal repayment under Section 80C

Your home loan's principal repayment qualifies for deduction under Section 80C, up to ₹1.5 lakh a year, if you file under the old tax regime. Keep the property for at least five years after possession to retain this benefit.

Additional deduction under Section 80EE

Section 80EE gives first-time homebuyers an extra ₹50,000 deduction on loan interest, but only for loans sanctioned between April 1, 2016 and March 31, 2017, where the property value was up to ₹50 lakh and the loan under ₹35 lakh. If your home loan is newer than that, this deduction won't apply to you, and like Section 80C it is available only under the old tax regime.

DTAA benefits to avoid double taxation

India has agreements with many 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 between India and your country of residence (India has these with many countries, including the USA, UK and UAE) helps you avoid paying tax twice. To claim treaty benefits in India, you need a Tax Residency Certificate (TRC) and Form 10F (Form 41 from 1 April 2026).

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 (Form 168 from tax year 2026-27) shows the TDS deducted against your PAN and helps you reconcile tax payments.

6. Choose the right account for rent deposits

Rent is usually credited to an NRO account, from which current income such as rent can be remitted abroad. RBI rules also allow current income such as rent to be credited to an NRE account, provided the bank is satisfied that it is current income and that income tax on it has been deducted, paid or provided for.

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.