Last month, Priya from London called us confused. She'd just rented out her Bangalore apartment for ₹40,000/month, and her tenant asked, "Which account should I transfer the rent to-your NRE or NRO?" She didn't know the answer.
Worse, she'd been crediting her Dubai salary to her old NRO account, creating a mess that would cost her thousands in unnecessary taxes and repatriation headaches.
If you own property in India while living abroad, getting the NRE vs NRO decision right isn't optional-it's the difference between smooth, tax-compliant repatriation and regulatory nightmares.
At Belong, we've helped thousands of NRIs structure their property income correctly. This guide will show you exactly which account to use, how TDS works, what you can repatriate, and the mistakes that trip up even experienced NRIs.
The Basic Rule (Memorize This)
Here's the non-negotiable guideline from FEMA regulations:
Rental income MUST be credited to your NRO account.
There's only one exception: if your tenant is also an NRI and pays from their NRE account, then your NRE account can receive it.
But since 99% of tenants in India are residents with regular savings accounts, your rental income will go to your NRO account.
Why this rule exists: NRO accounts are designed for income earned in India. NRE accounts are strictly for foreign earnings converted to rupees. Mixing these creates violations under FEMA, and banks will reject transfers.
👉 Tip: When signing your rental agreement, clearly mention your NRO account details and specify your NRI status. This helps your tenant deduct TDS correctly.
Understanding TDS on Rental Income (31.2% Deduction)
Here's what shocks most NRIs: Your tenant must deduct 31.2% TDS (30% tax + 4% cess) from every rent payment before transferring it to your account, according to Section 195 of the Income Tax Act.
Example:
- Monthly rent: ₹40,000
- TDS deducted: ₹12,480
- Amount you receive: ₹27,520
Your tenant deposits this TDS with the income tax department by the 7th of the following month (for non-194-IB cases) or 30th (for 194-IB via 26QC) and provides you Form 16A as proof (quarterly).
What if your tenant doesn't deduct TDS?
They face 1% interest p.m. for non-deduction + 1.5% p.m. for non-payment (Sec 201(1A)), plus potential legal action. Non-compliance can lead to imprisonment (3 months-7 years) + fine under Section 276B; however, no prosecution if TDS paid by quarterly statement due date (e.g., May 31 for Q4).
Source:Income Tax Act - Section 201(1A) / 276B / , TaxGuru - Section 201(1A) Interest
Indian Kanoon - Section 276B, CBDT Circulars on TDS, BajajFinserv - TDS payment due
Can you reduce the TDS?
Yes. If your total Indian income is below ₹4 lakh (new tax regime) or ₹2.5 lakh (old regime), apply for a Lower Deduction Certificate under Section 197.
This allows your tenant to deduct TDS at a lower rate-or zero-based on your actual tax liability. Apply through the income tax portal before the rental year begins.
Repatriating Rental Income: Current Income vs Capital
The good news: Rental income is classified as "current income" and is fully repatriable without the USD 1 million limit, as confirmed by ICICI Bank's NRI guidelines.
What you need to repatriate rent:
- Proof that taxes are paid: Your CA issues Form 15CB (if annual rent exceeds ₹5 lakh)
- File Form 15CA online: Through the income tax portal for each transfer
- Bank documentation: Your bank processes the remittance once forms are submitted
This is different from "capital income" like property sale proceeds or FD maturity, which falls under the USD 1 million annual repatriation limit for NRO accounts.
👉 Tip: Don't let rental income accumulate in your NRO account for years. Repatriate it annually to avoid documentation hassles and take advantage of favorable exchange rates.
When You Sell the Property: Which Account Gets the Money?
Property sale proceeds must also be credited to your NRO account. But here's where it gets tricky: these proceeds are subject to the USD 1 million per financial year repatriation limit across all your NRO accounts combined.
Example:
You sell a property for ₹1.5 crore (approximately USD 1.8 million at current rates). You can repatriate only USD 1 million in FY 2025-26. The remaining amount stays in India until the next financial year, or you invest it in Indian assets.
TDS on property sale:
The buyer deducts 12.5% TDS (recently reduced from 20%) on long-term capital gains if you've held the property for more than 24 months, per the latest tax rules. For short-term holdings (less than 24 months), TDS is 30%.
Saving capital gains tax:
You can claim exemptions under Section 54 if you reinvest gains in another residential property in India within specified timelines. This is particularly useful if you're planning to return to India eventually.
Tax Deductions That Reduce Your Rental Income Tax
Your taxable rental income isn't the gross rent-you can claim several deductions under Income from House Property:
1. Standard Deduction: 30%
Automatically deducted, regardless of actual expenses. If you collect ₹5 lakh in annual rent, you deduct ₹1.5 lakh immediately.
2. Municipal Taxes:
Property tax paid to local authorities during the financial year.
3. Home Loan Interest:
- Self-occupied property: Up to ₹2 lakh under Section 24(b)
- Rented property: Full interest deduction with no cap
4. Principal Repayment:
Up to ₹1.5 lakh under Section 80C (combined with other 80C investments)
These deductions can significantly lower your tax liability. Many NRIs overlook them and overpay.
Also Read -Taxation on Rental Income in India for NRIs
Filing Your Income Tax Return: Non-Negotiable
Even if your rental income is below the taxable threshold after deductions, you must file an ITR as an NRI earning income in India. Deadline: July 31 every year.
Why file even with no tax due?
- To claim TDS refunds if excess was deducted
- To carry forward losses (like if home loan interest exceeds rent)
- To maintain compliance for future repatriation
- To avoid penalty notices
Use ITR-2 if you only have property income, or ITR-3 if you also have business income in India. Learn more about NRI tax filing here.
👉 Tip: Use DTAA provisions to avoid double taxation. If you're paying tax on the same rental income in your resident country, claim foreign tax credit by submitting Form 10F and your Tax Residency Certificate.
Common Mistakes That Cost NRIs Thousands
Mistake 1: Receiving rent in NRE account from resident tenant
This violates FEMA. Banks will reverse the transaction, and you'll face penalties.
Mistake 2: Not updating bank about NRI status
If you became an NRI recently but haven't converted your savings account to NRO, all your transactions are technically non-compliant. Update your status immediately-most banks allow online conversion.
Mistake 3: Ignoring Form 15CA/15CB requirements
Trying to repatriate rent without filing these forms will get your transfer rejected. If annual rent exceeds ₹5 lakh, Form 15CB (CA certification) is mandatory.
Mistake 4: Not claiming the 30% standard deduction
We've seen NRIs pay tax on gross rent because they didn't know about automatic deductions. Always calculate tax on net rental income after deductions.
Mistake 5: Letting property sale proceeds sit in NRO beyond USD 1M
If you sell a high-value property, plan repatriation across two financial years or invest excess in Indian assets rather than leaving it idle.
Also Read - DTAA for NRI Bank Interest: Can You Avoid 30% TDS Legally
What About Belong's GIFT City Options?
If you're earning substantial rental income and want to diversify beyond property, consider our GIFT City USD fixed deposits. These offer:
- Tax-free returns in USD
- Protection against rupee depreciation (unlike rent paid in INR)
- Simplified repatriation (no Form 15CA/15CB hassle)
- Higher interest rates than traditional NRE FDs
Compare GIFT City FDs with other NRI investment options using our FD Rates Explorer.
Also Read - How to Repatriate Funds from an NRI Account to Abroad
Quick Action Checklist
If you're currently earning rental income:
Confirm rent is being credited to NRO account
Verify your tenant is deducting 31.2% TDS and providing Form 16A
Check if you qualify for Section 197 certificate to reduce TDS
Claim all eligible deductions (30% standard, municipal tax, home loan interest)
File ITR by July 31, even if no net tax due
If repatriating rent, get CA certificate (Form 15CB) if rent exceeds ₹5 lakh annually
File Form 15CA online before each repatriation
Use DTAA provisions to avoid double taxation in your resident country
Also Read -How to Repatriate Funds from NRO/NRE Accounts
If you're planning to sell property:
Understand the USD 1 million repatriation limit
Plan repatriation across financial years if proceeds exceed the limit
Explore Section 54 exemptions if buying another property
Ensure buyer deducts correct TDS (12.5% for LTCG, 30% for STCG)
Need Help Navigating This?
Property income for NRIs comes with layers of tax, repatriation, and compliance rules. One wrong move-like receiving rent in the wrong account-can create years of paperwork.
At Belong, we've built tools to make NRI financial decisions simpler:
1. Join Our WhatsApp Community
10,000+ NRIs discuss property taxation, repatriation, and investment strategies daily. Ask questions, get answers from our team and experienced community members: Join Now
2. Download the Belong App
Explore GIFT City investment options, compare FD rates, and access tools like our Residential Status Calculator to understand your tax obligations: Get the App
3. Use Our Free Tools:
- Compliance Compass - Check if you're following all NRI financial rules
- Rupee vs Dollar Tracker - Time your repatriation when exchange rates favor you
The difference between using NRE and NRO accounts correctly isn't just about following rules-it's about protecting your money, minimizing taxes, and moving funds abroad without friction. Get it right once, and everything else becomes easier.
Disclaimer: This article is for educational purposes only. Tax and regulatory rules change frequently. Consult a SEBI-registered investment advisor and chartered accountant before making financial decisions.
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