Tax on Rental Income in India for NRIs: Rules, Deductions & TDS
Owning a property in India while living abroad can provide NRIs with a steady rental income. However, rental income from a property located in India can have important Indian tax implications, even when the rent is received in an overseas bank account.
For NRIs, understanding how rental income is taxed, which deductions are available, how TDS applies, and how the income should be reported in the Indian tax return is essential for staying compliant and avoiding unnecessary tax issues.
Is Rental Income in India Taxable for NRIs?
Yes. Rental income from a property situated in India is generally taxable in India, even if the owner is an NRI and the rent is received outside India.
The Income Tax Department states that income from house property in India is taxable for a non-resident. Taxability is based on the source and location of the property, and not simply on where the rental payment is received.
Rental income from an Indian property is generally taxable under the head “Income from House Property”, provided the taxpayer is the owner of the property.
For example, suppose an NRI living in the UK owns an apartment in Delhi and earns ₹50,000 per month as rent. The fact that the rent is credited to the NRI’s UK bank account does not by itself make the income non-taxable in India.
How Is Rental Income Taxed for an NRI?
The taxable income is not necessarily the same as the total rent received.
For a let-out property, the calculation generally involves determining the annual value and then allowing eligible deductions.
A simplified calculation can look like this:
Gross Annual Rent Less: Municipal taxes actually paid by the owner = Annual Value
From the annual value, eligible deductions may be claimed, including:
- 30% standard deduction
- Interest payable on eligible borrowed capital, subject to applicable provisions
Under the Income-tax Act, 2025, the deduction for income from house property continues to include 30% of the annual value and eligible interest on borrowed capital.
Example
Suppose an NRI owns a property in Mumbai and receives rent of ₹60,000 per month.
Annual rent: ₹60,000 × 12 = ₹7,20,000
Assuming there are no municipal taxes to deduct:
Annual Value: ₹7,20,000
30% standard deduction: ₹2,16,000
Income from house property before eligible interest deduction: ₹5,04,000
If the NRI also has eligible interest on a housing loan, that interest may be considered separately while computing the taxable income, subject to the applicable rules.
This means an NRI is generally not taxed on the entire gross rent as taxable house-property income. This is the income used to compute tax liability — it is separate from the TDS the tenant deducts at the time of payment (see below), which is calculated on the gross rent, not this net figure.
30% Standard Deduction for NRIs
One of the important deductions available against rental income is the standard deduction.
An NRI can generally claim a 30% deduction of the annual value for house-property income.
The advantage of this deduction is that it is available irrespective of the actual amount spent on routine repairs and maintenance.
For example, if the annual value of the property is ₹10 lakh:
Annual Value: ₹10,00,000 30% Standard Deduction: ₹3,00,000 Balance: ₹7,00,000
The applicable tax is then determined after considering other eligible deductions and the NRI’s overall taxable income.
Can an NRI Claim Home Loan Interest Deduction?
Yes, eligible interest paid on borrowed capital used for acquiring, constructing, repairing, renewing or reconstructing the property can be considered while computing income from house property.
The Income-tax Act, 2025 specifically provides for deduction of interest payable on qualifying borrowed capital.
This can be particularly relevant for NRIs who continue to repay an Indian home loan while living overseas.
However, the exact treatment of interest, including restrictions relating to set-off or carry-forward of house-property losses, should be checked based on the applicable tax regime and the individual’s circumstances.
TDS on Rent Paid to an NRI
TDS is one of the most important compliance areas for tenants paying rent to an NRI, and it is the area where the rules for an NRI landlord differ most sharply from those for a resident landlord.
When rent is paid to a non-resident, Section 195 applies — not the resident-landlord provision (Section 194-I) that most tenants are familiar with. This distinction matters for two reasons:
- Rate. For a resident landlord, TDS on rent is typically deducted at 10%. For an NRI landlord, tenants must deduct TDS at a flat 30%, plus applicable surcharge and health-and-education cess — commonly amounting to an effective rate in the region of 31.2% to around 35–39%, depending on the surcharge slab applicable to the NRI’s total income. This is deducted on the gross rent, not on the income after the 30% standard deduction discussed above.
- Threshold. Section 194-I for resident landlords applies only once annual rent crosses a specified threshold. Section 195 has no minimum threshold — TDS must be deducted regardless of how small the rent is, as long as the landlord is a non-resident.
Tenants should not assume that the regular resident-landlord TDS provisions or thresholds apply simply because the rent amount is modest; the applicability of Section 195 depends on the landlord’s residential status, not the size of the payment.
The tenant is required to obtain a TAN, deduct TDS at the time of payment or credit (whichever is earlier), deposit it by the due date, and file the relevant TDS return, issuing a TDS certificate to the landlord.
Lower or Nil TDS Certificate
If the NRI’s actual tax liability on the rental income is expected to be lower than the flat TDS rate — for instance, because of the 30% standard deduction, home loan interest, or DTAA benefits — the NRI landlord may apply to the Assessing Officer under Section 197 for a certificate authorising a lower or nil rate of TDS. This certificate, once issued, can be given to the tenant so that TDS is deducted at the reduced rate rather than the default flat rate.
Why Is This Important for Tenants?
Suppose an NRI owns a flat in Bengaluru and receives ₹80,000 per month as rent from a tenant.
The tenant should first establish that the landlord is a non-resident for Indian tax purposes and then deduct TDS under Section 195 at the applicable rate — not at the lower rate or threshold that would apply to a resident landlord.
The precise effective rate depends on the applicable surcharge and cess for the relevant year, and treaty provisions where a DTAA is in force. Because Section 195 involves payments to non-residents and carries penal consequences for non-compliance, professional advice is generally advisable, particularly where the amount is significant.
Is TDS the Final Tax on Rental Income?
Not necessarily — and for NRIs this point deserves particular emphasis, because the flat TDS rate under Section 195 is often higher than the NRI’s actual tax liability once deductions are applied.
TDS is a mechanism for collecting tax at source. It does not represent the NRI’s final tax liability.
The NRI must report the rental income in the Indian income-tax return and calculate the actual tax liability after considering the 30% standard deduction, eligible home loan interest, and other taxable income.
If the tax actually deducted exceeds the final liability — which is common given the flat 30%+ TDS rate — the NRI can claim a refund of the excess by filing a return.
What About Municipal Taxes?
Municipal or local authority taxes can be relevant while calculating income from a let-out property.
Where applicable conditions are satisfied, municipal taxes actually paid by the owner may be deducted while arriving at the annual value.
Therefore, NRIs should maintain proper records of property-tax payments and supporting documents.
What If the Property Is Vacant?
A property may not generate rent for the entire year.
For example, an NRI may have a tenant leave in June and find a new tenant only in October.
In such cases, the computation of annual value and the treatment of unrealised rent or vacancy need to be considered according to the applicable provisions.
The Income Tax Department has also introduced specific reporting fields relating to unrealised rent in the ITR framework.
Therefore, NRIs should maintain documents such as:
- Rent agreements
- Rent receipts
- Bank statements
- Property-tax receipts
- Details of periods when the property was vacant
- Details of unrealised rent, if applicable
Which ITR Should an NRI Use for Rental Income?
An NRI with income from house property may generally need to file ITR-2, depending on the nature of their income.
For AY 2026-27, the Income Tax Department states that ITR-2 is applicable to individuals and HUFs, including non-residents, who have income from house property and do not have income chargeable under the head “Profits and Gains of Business or Profession.”
Filing a return is generally required for an NRI earning rental income in India, even where deductions bring the net taxable income to a low figure or to nil, since a return is also the route through which excess TDS can be claimed back.
The appropriate return, however, depends on the taxpayer’s complete income profile.
For example, an NRI may also have:
- Salary income
- Capital gains
- Interest income
- Dividend income
- Foreign income
- Foreign assets
- Business or professional income
The correct ITR should therefore be selected after considering the complete tax profile.
Does an NRI Need to Pay Tax Even If the Rent Is Received Abroad?
Yes, potentially.
The location of the bank account receiving the rent does not by itself determine whether the rental income is taxable in India.
If the property generating the rent is located in India, the rental income can be taxable in India even when the NRI receives the money in a foreign bank account.
For instance, an NRI living in Canada who owns a house in Pune cannot generally avoid Indian taxation merely by asking the tenant to transfer the rent to a Canadian bank account.
It is also worth noting that rent received by an NRI in India is generally required to be credited to an NRO (Non-Resident Ordinary) account rather than an NRE account, except in specific circumstances. Repatriation of the rental income abroad is possible after payment of applicable taxes and completion of the relevant certification (such as Form 15CA/15CB) where required.
What About DTAA?
If an NRI is also a tax resident of another country, the Double Taxation Avoidance Agreement (DTAA) between India and that country may become relevant.
A DTAA can provide rules for determining how certain income is taxed and how double taxation may be relieved. Where a DTAA is in force, the tenant deducting TDS should generally apply whichever rate is more beneficial to the NRI — the domestic rate under Section 195, or the DTAA rate — subject to the NRI furnishing the required documentation, such as a Tax Residency Certificate (TRC) and Form 10F.
However, treaty provisions vary from country to country, and the taxpayer may need to satisfy specific conditions and documentation requirements to claim treaty benefits.
NRIs should therefore consider both:
- Indian domestic tax provisions; and
- The applicable DTAA, if relevant.
Common Mistakes NRIs Should Avoid
1. Assuming rental income is tax-free because they live abroad
Being an NRI does not make income from Indian property automatically exempt from Indian tax.
2. Reporting only the amount after TDS
TDS is not the final tax liability, and it is usually deducted at a flat rate well above what many NRIs actually owe once deductions are applied. Rental income should be properly computed and reported, and any excess TDS claimed back through the return.
3. Ignoring TDS compliance and threshold differences
Tenants paying rent to an NRI should apply Section 195 at the applicable flat rate from the very first rupee of rent, rather than assuming the resident-landlord rate or threshold under Section 194-I applies.
4. Forgetting eligible deductions
The 30% standard deduction and eligible interest deduction can significantly affect taxable house-property income, and can also form the basis for applying to the Assessing Officer for a lower TDS certificate.
5. Not maintaining documentation
Rent agreements, bank statements, property-tax receipts, loan-interest certificates and TDS documents can be important for supporting the tax computation.
6. Ignoring DTAA provisions
An NRI who is also tax resident in another country should check whether the relevant DTAA affects the taxation or relief available, and should keep the required documentation (TRC, Form 10F) ready to claim it.
Documents an NRI Should Keep Ready
For smooth tax compliance, it is useful to maintain:
- PAN
- Rent agreement
- Rent receipts
- Bank statements showing rental receipts
- Property-tax payment receipts
- Home-loan interest certificate, where applicable
- TDS certificates (Form 16A)/Form 26AS or relevant tax-credit records
- Details of vacancy or unrealised rent
- Details of other Indian income
- Relevant foreign tax and residency documents (TRC, Form 10F), where DTAA relief is being considered
Key Takeaway
Rental income from property located in India can be taxable in India even when the property owner is an NRI and the rent is received outside India.
The tax calculation generally allows important deductions, including the 30% standard deduction and eligible interest on borrowed capital. At the same time, TDS compliance becomes particularly important when rent is paid to an NRI, because payments to non-residents are subject to Section 195, which applies a flat TDS rate (commonly in the region of 31.2% or higher once surcharge and cess are included) with no minimum rent threshold — quite different from the resident-landlord rules tenants may otherwise be familiar with.
NRIs should also ensure that rental income is correctly reported in the appropriate income-tax return, consider applying for a lower TDS certificate where applicable, and factor in DTAA provisions where they are tax residents of another country.
Because tax rules can vary depending on residential status, property ownership, rental arrangements, other income, applicable tax regime and treaty provisions, and because rates and thresholds are subject to change through the Finance Act each year, readers are advised to verify current provisions or consult a qualified tax professional before taking any tax-related decision specific to their circumstances.
Disclaimer: This article has been prepared by Neha R Gupta & Co., Chartered Accountants, for general informational purposes only. It is not intended as, and should not be relied upon as, legal, tax or financial advice for any specific case. Tax laws, rules, rates and procedures may change, including through amendments introduced by the annual Finance Act. Readers should verify the applicable provisions for their specific circumstances or consult a qualified tax professional before taking any tax-related decision.
