Are you an NRI earning rental income from property in India? Staying compliant with Indian tax laws is essential to avoid penalties and make the most of your investment returns.
As per NRI taxation rules, rental income is subject to TDS at 31.2%, but you can reduce your taxable amount by claiming a standard 30% deduction on the annual rental value. If your total income exceeds ₹2.5 lakh (old regime) or ₹3 lakh (new regime), filing an income tax return in India becomes mandatory.
Additionally, if you reside in a country with a Double Tax Avoidance Agreement (DTAA) with India—like the USA, UK, or Canada—you can avoid double taxation on the same income. Non-compliance can attract serious consequences, including hefty fines and imprisonment under Indian tax law.
How Tax on Rental Income Works for NRIs
Tax calculations for NRIs earning rental income in India follow a structured process that differs from those applicable to residents. Let's understand how this works to help you manage your tax obligations effectively.
Your taxable rental income is determined by calculating the Net Annual Value (NAV) of your property through these steps:
- Take the gross annual rent received
- Subtract municipal taxes paid on the property
- Apply the standard deduction of 30% from the NAV
- Deduct interest paid on any home loan (if applicable)
The final figure after these deductions represents your taxable rental income.
For NRIs, TDS compliance is mandatory. Your tenant must deduct TDS at 31.2% (30% plus 4% cess) from every monthly rent payment, regardless of the amount. Additionally, your tenant needs to follow these steps:
- Obtain a Tax Deduction Account Number (TAN)
- Deposit the TDS by the 7th of the following month
- Fill Form 15CA online for each rent payment
- Provide you with Form 16A (TDS certificate) within 15 days of filing quarterly TDS returns
If your annual rent exceeds ₹5 lakhs, your tenant must obtain Form 15CB from a Chartered Accountant, and rent payments must be credited to your NRO account—unless the tenant is another NRI paying from their NRE account, in which case your NRE account may be used.
Non-compliance can result in serious consequences, including imprisonment for your tenant under Section 276B and penalties equal to the TDS amount. Regardless of TDS, you must file an income tax return in India if your income exceeds ₹2.5 lakh (old regime) or ₹3 lakh (new regime), allowing you to claim deductions and refunds. If you're in a DTAA country, you can also avoid double taxation on the same income.
Tax Deductions and Exemptions NRIs Can Claim
If you're an NRI earning rental income from properties in India, several tax deductions and exemptions can significantly reduce your tax liability. Understanding these benefits helps you optimize your tax planning effectively.
The most valuable deduction available to you is the standard deduction of 30% on your Net Annual Value (NAV). This deduction applies automatically, regardless of your actual maintenance expenses, making it beneficial even if you spend less on property upkeep.
You can also fully deduct municipal taxes paid within the financial year from your gross rental income. If you've taken a home loan for your property, additional deductions include:
- Interest deduction under Section 24(b) of up to ₹2 lakh annually if the property is self-occupied
- Full interest deduction if the property is rented out
- Principal repayment deduction of up to ₹1.5 lakh annually under Section 80C
- Additional ₹50,000 deduction under Section 80EE on the interest component (for qualifying loans)
These deductions directly reduce your taxable income in India, making them particularly valuable for NRIs managing their tax obligations.
Living in a country that has a Double Taxation Avoidance Agreement (DTAA) with India offers added tax relief. With over 90 countries—including the USA, UK, Canada, and Australia—covered under DTAAs, you're protected from being taxed twice on the same income. For instance, if you're a US-based NRI like Rahul earning rental income from property in Mumbai, the India-US DTAA allows you to claim a Foreign Tax Credit in the US for the 31.2% TDS paid in India.
If your actual tax liability is lower than the standard TDS, you can apply for a reduced TDS certificate under Section 197 by submitting Form 13 with income details and justification. Filing your income tax return in India is essential to claim these benefits, report rental income accurately, and receive refunds for any excess TDS deducted.
Compliance Checklist for NRIs and Tenants
Managing tax compliance for rental properties requires careful attention from both NRIs and their tenants. Staying on top of these requirements helps you avoid hefty penalties and legal complications.
For NRI Landlords
As an NRI landlord, you need to maintain accurate documentation at all times. This includes:
- Updated lease agreements clearly stating your NRI status
- Detailed records of all rental income received
- All TDS certificates from your tenants
- Current KYC documentation which often requires updating when your residency status changes
Regular verification of your Form 26AS through the income tax portal or your bank's net banking facility is essential. This statement shows all tax deductions against your PAN and helps you reconcile your tax payments.
If you believe your tax liability is lower than the standard TDS rate, apply for a Section 197 certificate promptly. This allows for reduced TDS deduction based on your specific financial situation.
Remember that rental income must be credited to your NRO account unless your tenant is another NRI paying from their NRE account.
For Tenants of NRI Landlords
If you're renting property from an NRI, you must follow these steps:
- Obtain a Tax Deduction Account Number (TAN) through the NSDL website
- Deduct TDS at 31.2% from monthly rent payments
- Deposit the TDS by the 7th of the following month via Challan ITNS281
- File quarterly TDS returns in Form 26Q
- Issue Form 16A (TDS certificate) to the landlord within 15 days of filing the return
For rent exceeding ₹5 lakh annually, you need to obtain Form 15CB from a chartered accountant before submitting Form 15CA online.
Consequences of Non-Compliance
The consequences of failing to meet tax obligations are severe. If you're a tenant who fails to deduct TDS, you face penalties equal to the tax amount not deducted under Section 271C. Additionally, non-payment of deducted TDS can lead to imprisonment ranging from three months to seven years under Section 276B.
For NRIs, failure to report rental income correctly can result in penalties and legal complications that might affect your overall tax position both in India and your country of residence.
Conclusion
Managing rental income tax compliance as an NRI may seem daunting, but with the right knowledge and a disciplined approach to documentation, it becomes far more manageable. While the 31.2% TDS deduction can feel excessive, the standard 30% deduction and other eligible exemptions can significantly reduce your tax liability. Maintaining accurate records—such as rental agreements, TDS certificates, Form 26AS, and property tax receipts—is essential for claiming deductions and staying audit-ready. If your actual tax due is lower than the deducted amount, applying for a reduced TDS certificate under Section 197 can help optimize your cash flow from rental income.
Double Taxation Avoidance Agreements (DTAAs) further protect your income from being taxed twice, though you must still file returns in India to remain compliant. Staying ahead of deadlines, reviewing Form 26AS regularly, and ensuring proper disclosures are key steps in avoiding penalties. This is where iNRI can support you—with expert guidance tailored to NRI-specific tax scenarios, simplified documentation tracking, and timely reminders to ensure you don’t miss a beat. Whether you own one property or several, iNRI empowers you to stay compliant while maximizing your eligible deductions with confidence.
Frequently Asked Questions
Q1. What are the tax obligations for NRIs earning rental income in India?
NRIs must pay tax on rental income from properties in India. Tenants are required to deduct 31.2% tax at source (TDS) from the rent before paying it to the NRI landlord. However, NRIs can claim various deductions to reduce their tax liability.
Q2. How is rental income taxed for NRIs in India?
Rental income for NRIs is taxed based on the Net Annual Value (NAV) of the property. This is calculated by subtracting municipal taxes and applying a standard 30% deduction from the gross annual rent. Additional deductions, such as home loan interest, can further reduce the taxable income.
Q3. Can NRIs avoid double taxation on rental income from Indian properties?
Yes, NRIs can avoid double taxation if their country of residence has a Double Taxation Avoidance Agreement (DTAA) with India. This allows them to claim credit for taxes paid in India on their rental income when filing taxes in their country of residence.
Q4. What deductions can NRIs claim on their rental income in India?
NRIs can claim several deductions, including a standard 30% deduction on the Net Annual Value, full deduction of municipal taxes paid, and home loan interest deductions. They may also be eligible for deductions on principal repayment under Section 80C and additional interest deductions under Section 80EE for qualifying loans.
Q5. What are the compliance requirements for NRIs earning rental income in India?
NRIs must file an income tax return in India if their total income exceeds the basic exemption limit. They should maintain accurate documentation, including lease agreements and TDS certificates. Regular verification of Form 26AS is crucial to reconcile tax payments. NRIs should also ensure their tenants comply with TDS regulations to avoid penalties.
