Taxation on Rental Income in India for NRIs: Complete Guide

Your WhatsApp is buzzing again. Another message from your Mumbai tenant: "Sir, rent paid. But my CA is asking about some TDS certificate. What should I do?"

Meanwhile, you're in Dubai, wondering: How much tax am I actually paying? Is 31.2% TDS the final amount? Can I reduce this?

And most importantly - am I doing everything legally?

If this sounds familiar, you're not alone. I've had dozens of conversations with NRIs who own rental property in India but feel completely lost about the tax implications. Some are paying way more than they should. Others are unknowingly non-compliant.

Here's the reality: NRI rental income taxation isn't rocket science, but it's definitely more complex than what your tenant's CA probably told you.

By the end of this guide, you'll know: Exactly how much tax you should pay, smart ways to reduce your burden legally, which bank account will save you the most hassle, and the costly mistakes that could land you in trouble.

The 31.2% TDS Shock: What Really Happens to Your Rent

Let's start with what probably brought you here - that moment when you discovered your ₹50,000 monthly rent becomes ₹34,400 after TDS.

Here's the math:

• Gross rent: ₹50,000
• TDS deducted by tenant: ₹15,600 (31.2%)
• Amount you receive: ₹34,400

But here's what most NRIs don't realize - that 31.2% TDS is just an advance payment, not your final tax bill.

Why 31.2% Specifically?

The breakdown is:

• Base TDS rate: 30% (under Section 195)
• Health & Education Cess: 4% of the tax (1.2%)
• Total: 31.2%

This rate applies regardless of the amount -unlike residents who have a ₹2.4 lakh annual threshold before TDS kicks in.

👉 Reality check: If your actual tax liability is lower than 31.2%, you can get a refund. If it's higher, you'll need to pay more when filing your return.

Which Bank Account is Costing You Money (And Which One Saves It)

This is where most NRIs mess up. Your choice of bank account doesn't just affect where the money goes - it determines your repatriation limits and tax complications.

NRO Account: The Default Choice

When to use:

• Property bought before becoming NRI
• Any inherited property
• You want to keep some money in India

Repatriation rules:

• Current income (rent): Freely repatriable in the same financial year
• Principal amount: Limited to USD 1 million per year

TDS implications:

• All rental income flows here if you're not sure about property purchase history
• 31.2% TDS still applies
• Forms 15CA/15CB needed for repatriation above ₹5 lakhs annually

NRE Account: The Smart Choice (If Eligible)

When to use:

• Property purchased with foreign exchange during NRI period
• Tenant is also an NRI paying from their NRE account​

The advantage:

• Unlimited repatriation
• No Forms 15CA/15CB headache
• Cleaner tax trail

Real example: Priya bought her Gurgaon flat in 2018 with money transferred from her Dubai account. Her rent can go to her NRE account, and she can transfer the entire amount to UAE without restrictions.

👉 Pro tip: If you're not sure which account to use, check your property purchase documents. Look for the FIRC (Foreign Inward Remittance Certificate) - if you have it, you likely qualify for NRE treatment.

The Deduction Game: How to Legally Pay Less Tax

Here's where you can significantly reduce your tax burden. Most NRIs only know about the 30% standard deduction, but there's more.

Automatic Deductions You Can Claim

1. Standard Deduction: 30% of Net Annual Value

[Deduction available under Section 24(a) of the Income Tax Act, 1961]

• No bills needed
• Covers maintenance, repairs, collection charges
• Applied automatically when calculating taxable income

2. Municipal Tax Deduction

• Property tax paid to local corporation
• Must be paid in the same financial year you're claiming
• Keep payment receipts

3. Home Loan Interest: The Big One

• Self-occupied property: Up to ₹2 lakhs per year
• Rented property: Entire interest amount (no ceiling)
• Interest deduction is not possible for pre-construction property. After construction, the aggregate amount can be claimed in 5 equally yearly instalments.

What If the Property Is Vacant?

Still taxable!

• The income is assumed as if it’s rented at fair market value (called deemed rent)
  But you can still claim:
  - 30% standard deduction
  - Municipal taxes
  - Home loan interest (as per rules)

Real Calculation Example

Let's say you earn ₹6 lakhs annual rent on a property with a ₹3 lakh home loan interest:

Gross Annual Rent: ₹6,00,000
Less: Standard Deduction (30%): ₹1,80,000
Less: Home Loan Interest: ₹3,00,000
Taxable Income: ₹1,20,000

Tax calculation:

• Taxable income: ₹1,20,000
• Tax rate: 30% = ₹36,000
• Health & Education Cess: ₹1,440
• Total tax liability: ₹37,440

But TDS deducted: ₹1,87,200 (31.2% of ₹6 lakhs) Refund due: ₹1,49,760

👉 Key insight: In this case, you'd get back almost ₹1.5 lakhs! This is why filing your tax return is crucial.

Old vs New Tax Regime: What Works for NRI Landlords

From FY 2025-26, the new tax regime is default for NRIs too. But here's what most guides don't tell you about rental income specifically:

Note: Self-occupied property interest deduction: up to ₹2 lakh for purchase/construction; ₹30,000 for repairs.

For rental income, the old regime usually wins because:

• Home loan interest deduction for let-out property is available

👉 Smart move: Calculate tax under both regimes. You can choose annually (except if you have business income).

Forms 15CA and 15CB: The Paper Trail That Banks Demand

When your rental income exceeds ₹5 lakhs annually, this paperwork becomes mandatory for repatriation.

Form 15CA: Your Declaration

• Filed online before remitting money
• States nature of payment and tax deducted
• Must be filed even for repatriation from your own NRO account

Form 15CB: CA's Certificate

• Required when annual remittance exceeds ₹5 lakhs
• Chartered accountant certifies tax compliance
• Cost: ₹5,000-₹15,000 depending on complexity

The Banking Reality

Different banks have different efficiency levels:

ICICI Bank: Digital process, usually 3-5 days 

HDFC Bank: Good support, 5-7 days 

SBI: More paperwork, 7-10 days 

DBS/HSBC: Premium service, 2-3 days but higher charges

👉 Insider tip: If you earn ₹50,000 rent every month, the first 9 payments are under the ₹5 lakh yearly limit. So, you only need Form 15CA – Part A (no CA needed).

But after the 10th payment, your total crosses ₹5 lakhs. For the 11th and 12th payments, you now need: A CA-certified Form 15CB before you can file Part C of Form 15CA for each of those payments.

Keep your rent papers and TDS proofs ready.

That way, when it’s time for Form 15CB, you won’t face delays from your bank or CA.

Lower TDS Certificate: Your Secret Weapon

This is where you can dramatically improve your cash flow. Instead of waiting for refunds, get your TDS reduced upfront.

When It Makes Sense

• High home loan interest
• Multiple deductions available
• You need better cash flow

How to Apply (Form 13)

1. Calculate your actual tax liability
2. Apply online on income tax portal
3. Submit supporting documents
4. Processing time: 15-30 days

Real case: Rajesh's Pune property generates ₹8 lakh annual rent. After ₹4 lakh home loan interest and deductions, his actual tax liability is only ₹48,000. Instead of 31.2% TDS (₹2.5 lakhs), he got a certificate for 6% TDS, improving his monthly cash flow by ₹16,800.

⚠️ Getting a Lower TDS Certificate is not always easy.

It depends on how the Assessing Officer (AO) reviews your application. Some applications may be rejected or delayed, so the acceptance rate is not very high.

Multiple Properties: The Tax Complications

If you own more than two properties, things get complex fast.

The Two-Property Rule

• First two properties: self-occupied, vacant or let-out for rent
• Third property onwards: Deemed to be let out for tax purposes

Deemed Rent Calculation

Even if your third property is vacant, you'll pay tax on notional rent based on:

• Municipal value
• Fair rent of similar properties
• Standard rent (if under Rent Control Act)

Strategy: If you own multiple properties, it’s smart to mark the two with the lowest rental value as self-occupied or vacant - this helps reduce your overall tax burden

Quick Example (for better understanding):

• Property A (₹15,000/month rent)

• Property B (₹10,000/month rent)

• Property C (₹50,000/month rent)

If you mark A and B as self-occupied/vacant, only Property C will be taxed.

But if you mark C and A as exempt, you'll pay tax on B, even though it earns less - leading to unnecessary extra tax.

UAE-India DTAA: Your Protection Against Double Taxation

👉 You still have to pay full tax in India.

​DTAA simply ensures you're not taxed again in the UAE - but since UAE doesn’t tax you anyway, it doesn’t reduce your Indian tax.

Docs you may still need:

• Maintain UAE Resident Status Records
• Form 10F (for Indian tax filing)

Property Management from Dubai: The Practical Challenges

Beyond tax, there are operational headaches that affect your income:

Tenant Management Issues

Problem: Tenant stops paying or paying late 

Solution: Include penalty clauses, maintain local emergency contact

Problem: Tenant refuses to deduct TDS 

Solution: Education + legal clause in agreement. Some tenants genuinely don't know.

Banking Complications

Problem: Bank freezes account due to irregular TDS deposits maintain good bank relationship

Power of Attorney Limitations

Problem: POA holder receives rent in their account 

Impact: TDS still applies based on actual owner (you), not POA holder

Common Mistakes That Cost Money

Mistake 1: Wrong Bank Account Choice

Cost: Unnecessary repatriation restrictions 

Fix: Understand your property purchase history before choosing account type

Mistake 2: Not Filing ITR Despite Refund Due

Cost: Losing refunds worth lakhs 

Fix: File ITR-2 even if income is below taxable limit

Mistake 3: Ignoring Form 16A from Tenant

Cost: Can't claim TDS credit without proper documentation 

Fix: Ensure tenant provides quarterly Form 16A within 15 days of filing TDS return

Mistake 4: Mixing Personal and Rental Transactions

Cost: Tax complications and audit risk 

Fix: Maintain separate accounts, clear documentation

Mistake 5: Assuming POA Changes Tax Rules

Cost: Non-compliance penalties 

Fix: Remember that beneficial ownership determines tax treatment, not who receives money

When Rental Income Becomes a Tax Burden

Sometimes, the tax arithmetic doesn't work in your favor:

High-Value, Low-Yield Properties

If your property is in an expensive area but rental yield is low, you might be paying more in taxes than earning net income.

Example: ₹3 crore property in South Delhi

• Monthly rent: ₹40,000 (₹4.8 lakh annually)
• Home loan interest: ₹6 lakh annually
• Net loss: ₹1.2 lakh

But: You'll still face deemed rent on high-value property even if actual rent is low.

How is Deemed Rent Calculated in India?

For properties not self-occupied or rented, tax is calculated on notional (deemed) rent - even if the property is vacant.

Deemed Rent = Higher of:

1. Municipal value

2. Fair rent (rent of similar properties in the area)

3. Standard rent (if under Rent Control Act)

Then, the lowest of those three is taken as your expected rent, which is taxed as income -regardless of whether you actually earn it.

So in our example:

Let’s say fair rent is ₹60,000/month.
Even if you earn ₹40,000, the tax officer may use ₹60,000 as deemed rent, increasing your taxable income by ₹2.4 lakh annually.

Alternative Strategies

1. Sell and invest in GIFT City FDs
2. Commercial property: Higher rental yields, different tax treatment
3. REITs: Professional management, better liquidity

GIFT City FDs: The Tax-Free Alternative

Before you commit to rental property headaches, consider this:

Current GIFT City FD rates: 4.0-4.5% in USD

For ₹50 lakh investment:

• Rental property: ~₹3.5 lakh net income (after all deductions and taxes)
• GIFT City FD: ~₹3.8 lakh equivalent (tax-free + currency benefits)

Check latest GIFT City FD rates →

Step-by-Step Action Plan

Before Renting Out

1. Choose between NRE or NRO account based on how you bought the property 
2. Calculate expected tax liability using all available deductions
3. Apply for Lower TDS Certificate if beneficial
4. Set up proper rental agreement with TDS clauses

During Rental Period

1. Monitor quarterly TDS payments by tenant
2. Collect Form 16A certificates every quarter
3. Track all deductible expenses (municipal taxes, loan interest)
4. Verify Form 26AS quarterly for TDS credit

Annual Compliance

1. File ITR-2 by July 31st (extended to September 15th for FY 2024-25)
2. Claim refunds if TDS exceeds actual liability
3. Plan next year's strategy based on experience

Your Next Steps

If you're earning rental income as an NRI:

1. Calculate TDS on rent using our TDS on rent calculator
2. Compare with GIFT City FD returns using our FD rate comparison tool
3. Ensure compliance with our Compliance Compass

Need help with tax planning? Our NRI Tax Filing Service handles everything from ITR filing to Lower TDS Certificate applications.

Want to explore alternatives? GIFT City USD FDs might offer better risk-adjusted returns with zero tax complications.

Disclaimer: This article is for educational purposes only. Tax implications vary by individual circumstances. Consult qualified chartered accountants for personalized advice.

Sources:

• Income Tax Department - Non-Resident Individual Guidelines
• RBI Master Directions on Non-resident Investment
• Form 15CA FAQ - Income Tax Department