Tax on Rental Income for NRIs in India (TDS + Filing Explained)
Last month, an NRI in Dubai forwarded us an email from his tenant's CA.
It said: "We are required to deduct 30% TDS on your monthly rent starting next month. Please provide your PAN."
He panicked immediately.
"Ankur, my rent is ₹45,000 a month. They are going to deduct ₹13,500 every month as tax? That is ₹1.62 lakh per year.
My actual income after society charges is barely ₹5 lakh. Am I really supposed to pay 30% on rent? Is there any way to reduce this?"
We see this panic every month atBelong.
NRIs receive rental income from property in India and suddenly face confusing TDS notices, unfamiliar forms, and calculations that do not add up.
Here is what we have learned helping hundreds of NRIs navigate this: rental income taxation is not as brutal as it first appears.
Yes, TDS is deducted at 31.2%. But your actual tax liability is almost always much lower. The difference comes back to you as a refund when you file your ITR correctly.
This guide covers everything: the TDS rules, how rental income is actually calculated, every deduction you can legally claim, which tax regime works better for you, and how to recover the money that is rightfully yours.
What Counts as Rental Income
Any rent you receive from property you own in India is taxable in India, regardless of where you live.
This includes monthly rent from a residential flat or house, rent from commercial property such as an office or shop, parking charges collected separately, and maintenance charges if they exceed your actual costs.
A practical example: you own a flat in Pune rented at ₹50,000 per month with ₹5,000 maintenance collected.
If actual society charges are ₹5,000, only ₹50,000 is rental income. If your actual charges are ₹3,000 but you collect ₹5,000, the extra ₹2,000 also counts as income.
Which Account Should Rental Income Go Into?
Your NRO account. Not your NRE account.
Rental income is India-sourced income. As perRBI and FEMA guidelines, it must be credited to a Non-Resident Ordinary (NRO) account.
One of the most common mistakes we see: NRIs asking tenants to transfer rent directly into their NRE account. This is a FEMA violation, not a minor administrative slip.
Understand the NRE vs NRO difference here.
Specifically for property income.
👉 Keep it simple: NRE account for foreign income, NRO account for India income. Rental income always goes into NRO, without exception.
The TDS Rule That Trips Everyone Up
This is the most important section in this article. And it contains a correction we have made after a sharp reader named Sailendra flagged an error in an earlier version.
NRI Landlord vs Resident Landlord: Two Completely Different Rules
There are two separate TDS frameworks under the Income Tax Act depending on who owns the property.
When the landlord is a resident Indian: Section 194IB applies. TDS is required only if monthly rent exceeds ₹50,000. The current rate is 2%, reduced from 5% effective October 1, 2024 per the Finance (No. 2) Act 2024. TDS is deducted once per year on the last month's rent. No TAN is required from the tenant.
When the landlord is an NRI: Section 195 applies. There is no threshold whatsoever. TDS must be deducted on the full rent amount regardless of how much it is. The rate is 31.2%. TDS is deducted every month. A TAN is mandatory for the tenant.
This distinction is the source of almost all confusion in NRI rental taxation.
👉 If you are an NRI landlord, the ₹50,000 monthly threshold simply does not exist for you. Your tenant must deduct 31.2% TDS from every rupee of rent, every single month, under Section 195 of the Income Tax Act.
The TDS Rate: 31.2% Effective
Under Section 195, the base TDS rate on rent paid to an individual NRI is 30%. Add Health and Education Cess at 4% on the tax amount, and the effective rate for individual NRI landlords works out to 31.2%.
Example: monthly rent ₹60,000. Annual rent ₹7.2 lakh. TDS at 31.2% = approximately ₹2.25 lakh deducted annually. You receive approximately ₹4.95 lakh in your NRO account.
This TDS is not your final tax. It is advance tax deducted at source. Your actual liability after deductions is almost always significantly lower. Filing ITR is how you get the difference back.
What the Tenant Must Do
The full legal compliance burden sits with your tenant, not with you.
Your tenant must:
Obtain a TAN before deducting TDS
Collect your PAN
Deduct 31.2% from every monthly rent payment
Deposit TDS with the government by the 7th of the following month using Challan ITNS 281
File quarterly TDS returns on Form 27Q
Issue Form 16A to you within 15 days of filing each quarterly return
When remitting rent proceeds to your overseas account, your tenant must also file Form 145 (previously known as Form 15CA) online and obtain Form 146 (previously known as Form 15CB) from a Chartered Accountant where required. Note that this remittance obligation applies to the person sending the funds abroad, not to you as the recipient.
If your tenant does not provide PAN, TDS must still be deducted at 31.2% and the return filed with PANNOTAVBL in the deductee PAN field.
If your tenant fails to deduct TDS, they face a penalty equal to the TDS amount under Section 271C and potential prosecution under Section 276B. You remain liable for the underlying tax and must pay it when filing your ITR.
How to Verify TDS Was Deducted Correctly
Download your Form 26AS from the Income Tax Portal at incometax.gov.in.
This shows all TDS credited against your PAN: who deducted it, how much, and the quarter-wise breakup. Match it against rent received in your NRO account.
Also check yourAnnual Information Statement for a broader view of reported transactions.
If your tenant says they deducted ₹2 lakh in TDS but Form 26AS shows ₹1.5 lakh, there is a problem. Sometimes tenants deduct TDS but delay depositing it with the government. This needs to be resolved before you file ITR.
Can You Reduce TDS Below 31.2%?
Yes, in one specific situation.
If your total India income is below the exemption limit:
Apply for a lower or nil TDS certificate from the Income Tax Department under Section 197 by submitting Form 13 to your Assessing Officer.
The AO reviews your projected income and if satisfied, issues a certificate specifying a reduced rate.
Your tenant deducts at the lower rate from the date of the certificate. Until it is furnished, the full 31.2% applies.
A note on DTAA and rental income:
India has Double Taxation Avoidance Agreements with countries including the UAE, UK, and USA. However, for rental income specifically, DTAA does not typically provide a reduced TDS rate in India.
Under most DTAAs, rental income from Indian property is taxable in India, where the property is located.
What DTAA does allow is that once you pay tax in India on your rental income, you can claim a tax credit for the Indian taxes paid when filing your tax return in your country of residence.
This avoids being taxed twice on the same income - once in India and once abroad.
Speak with a tax advisor familiar with the specific DTAA between India and your country of residence to understand the credit mechanism applicable to your situation.
Read more about DTAA benefits for NRIs.
How Actual Rental Tax Is Calculated
Here is where most NRIs discover the real picture.
TDS is a flat 31.2% of gross rent. But your actual tax is calculated in steps, with deductions that significantly reduce what you owe.
Step 1: Gross Annual Rent
Total rent received or due from April to March.
Example: ₹55,000 per month. Annual rent: ₹6.6 lakh.
Step 2: Deduct Municipal Taxes Paid
Subtract actual property tax paid to the local municipal corporation during the year.
Example: gross rent ₹6.6 lakh minus municipal tax ₹15,000 = net rent ₹6.45 lakh.
Only municipal property tax qualifies. Society maintenance charges do not.
Step 3: Apply 30% Standard Deduction
A flat 30% deduction on net rent. Automatic. No bills or proof required. It notionally covers repairs, wear and tear, and management costs.
Example: 30% of ₹6.45 lakh = ₹1.94 lakh deducted. Taxable rental income: ₹4.51 lakh.
Step 4: Deduct Home Loan Interest
This is where many articles get it wrong.
For a let-out (rented) property, home loan interest is deductible in full under Section 24(b). There is no upper cap. And this applies in both the old tax regime and the new tax regime.
The ₹2 lakh cap on Section 24(b) applies only to self-occupied properties under the old regime.
Since your property is rented out, you can deduct the entire interest paid, regardless of the amount, in either regime.
Example: home loan interest paid ₹2.8 lakh. Full ₹2.8 lakh is deductible. Taxable rental income reduces further to ₹1.71 lakh.
The key difference between regimes for rented property with a home loan is what happens when interest exceeds rental income and creates a loss:
Under the old regime: the loss can be set off against other India income up to ₹2 lakh per year. Remaining loss carries forward for eight years.
Under the new regime: the loss cannot be set off against other income. It stays ringfenced within house property income.
👉 If your home loan interest is large and you have other India income to offset losses against, old regime may give you an additional benefit. If interest is modest relative to rent, both regimes give you the same deduction.
Step 5: Calculate Tax at Slab Rate
Your taxable rental income is taxed at applicable slab rates for FY 2025-26.
NRIs are entitled to the basic exemption limit: ₹4 lakh under the new regime and ₹2.5 lakh under the old regime.
However, NRIs are not eligible for the Section 87A rebate that makes income up to ₹12 lakh effectively tax-free for resident Indians.
Tax applies on income above the basic exemption limit at the applicable slab rates.
New tax regime slabs for FY 2025-26:
₹0 to ₹4 lakh: nil. ₹4 to ₹8 lakh: 5%. ₹8 to ₹12 lakh: 10%. ₹12 to ₹16 lakh: 15%. ₹16 to ₹20 lakh: 20%. ₹20 to ₹24 lakh: 25%. Above ₹24 lakh: 30%.
Old tax regime slabs for FY 2025-26 (for NRIs):
₹0 to ₹2.5 lakh: nil. ₹2.5 to ₹5 lakh: 5%. ₹5 to ₹10 lakh: 20%. Above ₹10 lakh: 30%.
Note: NRIs do not get the higher basic exemption limits available to senior and super senior citizens under the old regime. Those benefits are available only to resident taxpayers.
What You Can and Cannot Deduct
Three things reduce your taxable rental income.
Municipal taxes paid to the local corporation during the year.
30% standard deduction on net rent, automatic, no proof needed.
Home loan interest in full, with no upper cap, available in both regimes for let-out property.
That is it. Everything else is excluded.
You cannot deduct society maintenance charges, electricity or water bills paid for the tenant, broker commission, home insurance premiums, renovation costs, or cost of furniture and appliances.
Read more about NRI tax deductions.
Three Complete Calculation Examples
Example 1: Modest Rental Income, Large Refund
2BHK in Bangalore. Monthly rent ₹55,000. Annual rent ₹6.6 lakh. Municipal tax paid ₹12,000. No home loan. No other India income. New regime.
TDS deducted under Section 195: 31.2% of ₹6.6 lakh = ₹2.06 lakh.
Tax calculation: gross rent ₹6.6 lakh, less municipal tax ₹12,000 = ₹6.48 lakh, less 30% standard deduction ₹1.94 lakh = taxable income ₹4.54 lakh.
Tax under new regime: nil on ₹0 to ₹4 lakh, 5% on ₹4 to ₹4.54 lakh = 5% on ₹54,000 = ₹2,700. Plus cess 4%: ₹108. Total tax: ₹2,808.
Refund: ₹2.06 lakh minus ₹2,808 = approximately ₹2.03 lakh.
Effective tax rate: 0.43% of gross rent. Not 31.2%.
Example 2: Higher Income, Home Loan
3BHK in Mumbai. Monthly rent ₹80,000. Annual rent ₹9.6 lakh. Municipal tax ₹25,000. Home loan interest paid ₹2.5 lakh. No other India income. New regime.
TDS deducted: 31.2% of ₹9.6 lakh = ₹3 lakh.
Tax calculation: gross rent ₹9.6 lakh, less municipal tax ₹25,000 = ₹9.35 lakh, less 30% standard deduction ₹2.81 lakh = ₹6.54 lakh, less home loan interest ₹2.5 lakh (full amount, no cap in new regime for let-out property) = taxable income ₹4.04 lakh.
Tax under new regime: nil on ₹0 to ₹4 lakh, 5% on ₹4 to ₹4.04 lakh = 5% on ₹4,000 = ₹200. Plus cess: ₹8. Total tax: ₹208.
Refund: ₹3 lakh minus ₹208 = approximately ₹2.99 lakh.
Example 3: Two Properties, Both Attracting Full TDS
Property 1 in Pune: rent ₹42,000 per month, annual ₹5.04 lakh.
Property 2 in Delhi: rent ₹70,000 per month, annual ₹8.4 lakh.
Municipal taxes combined ₹35,000. No home loan. No other India income. New regime.
Both properties attract TDS under Section 195. No threshold applies. Both tenants must deduct monthly.
TDS on Property 1: 31.2% of ₹5.04 lakh = ₹1.57 lakh. TDS on Property 2: 31.2% of ₹8.4 lakh = ₹2.62 lakh. Total TDS: ₹4.19 lakh.
Tax calculation: total gross rent ₹13.44 lakh, less municipal taxes ₹35,000 = ₹13.09 lakh, less 30% standard deduction ₹3.93 lakh = taxable income ₹9.16 lakh.
Tax under new regime: nil on ₹0 to ₹4 lakh, 5% on ₹4 to ₹8 lakh = ₹20,000, 10% on ₹8 to ₹9.16 lakh = ₹11,600. Total ₹31,600 plus cess ₹1,264 = ₹32,864.
Refund: ₹4.19 lakh minus ₹32,864 = approximately ₹3.86 lakh.
Effective tax rate: 2.4% of gross rent.
👉 In all three examples, the actual tax is a fraction of the 31.2% deducted. Filing ITR is the only way to recover the difference.
Old Regime vs New Regime: The Real Decision
For a rented property, home loan interest is fully deductible in both regimes with no cap. So the interest deduction itself is not a reason to choose old regime.
The old regime becomes clearly better when your home loan interest exceeds rental income, creating a loss that you want to set off against other India income such as capital gains or FD interest.
Old regime allows this set-off up to ₹2 lakh per year. New regime does not.
The new regime may work better when your interest is modest relative to rental income, you have no significant other India income to offset losses against, and the lower new regime slab rates produce a better overall outcome.
Always calculate both before filing. The difference can be substantial.
Compare old vs new tax regime in detail.
How to File ITR and Claim Your Refund
Documents to Gather
Form 26AS from the Income Tax Portal.
Annual Information Statement.
Rental agreement.
Rent receipts or NRO bank statements.
Municipal tax payment receipts.
Home loan interest certificate from your bank.
Form 16A from each tenant.
Filing Steps
NRIs with rental income from India file ITR-2.
Log in to incometax.gov.in using your PAN. File ITR-2 reporting income under "Income from House Property."
Enter TDS details from Form 26AS to ensure correct credit. The portal calculates your refund automatically. Verify ITR using Aadhaar OTP, net banking, or by sending the signed ITR-V to CPC Bangalore.
Refund is typically credited to your NRO-linked bank account within 4 to 16 weeks of verification.
The filing deadline for most NRIs is 31 July of the assessment year. For FY 2025-26, that is 31 July 2026.
NRI ITR filing deadline details.
How to file ITR online as NRI.
Common filing mistakes to avoid.
Special Situations
Property vacant for part of the year: Only actual rent received is taxable. No deemed or notional rent during vacancy.
You stayed in the property during India visits: The self-use period is excluded. Only the actual rental period counts.
Tenant pays rent in advance: If a tenant pays six months in advance in March, the income recognition across financial years should be discussed with your CA to avoid double-counting.
Jointly owned property: Each co-owner reports their proportional share in their individual ITR.
Joint property and NRE account considerations.
The Six Mistakes We See Every Month
Mistake 1: Not filing ITR because TDS is the final tax.
It is not. TDS is advance tax at a flat rate. Your actual liability after deductions is a fraction of that. Not filing means losing your refund permanently.
Mistake 2: Assuming the ₹50,000 threshold applies.
This was the error Sailendra caught. The ₹50,000 threshold under Section 194IB applies only to resident Indian landlords. Under Section 195, there is no threshold for NRI landlords. TDS applies from rupee one, every month.
Mistake 3: Receiving rent in an NRE account.
FEMA violation. Rental income is India-sourced and must go into NRO. Correct this immediately if it has been happening.
Mistake 4: Missing the 30% standard deduction.
Automatic and significant. On ₹6 lakh annual rent it removes ₹1.8 lakh from taxable income. Some NRIs who self-file miss this entirely.
Mistake 5: Thinking home loan interest deduction requires old regime.
For a rented property, the full interest is deductible in both regimes. Do not choose a regime based on this misunderstanding. Evaluate properly.
Mistake 6: Missing the filing deadline.
NRIs who do not file ITR-2 by 31 July cannot reclaim their TDS refund through the regular process. The money does not return automatically.
What income is taxable for NRIs.
NRI vs resident tax filing differences.
How Belong Can Help
NRI rental income tax filing involves multiple steps: verifying TDS against Form 26AS, choosing the right tax regime, calculating deductions correctly, and filing ITR-2 before the deadline.
If you want help navigating any part of this, our team atBelong is here. We work with NRIs across the UAE, UK, and US to help them stay compliant and recover what is rightfully theirs.
Explore our NRI tax filing service.
For deploying rental income into structured financial products, compareNRI FD rates for safe fixed-income returns.
ExploreGIFT City mutual funds including theDSP Global Equity Fund,Tata India Dynamic Equity Fund,Edelweiss Greater China Equity Fund, andSundaram India Mid Cap Fund for USD-denominated returns.
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Frequently Asked Questions
Q: Does the ₹50,000 monthly threshold apply when the landlord is an NRI?
No. The ₹50,000 threshold under Section 194IB applies only to resident Indian landlords. For NRI landlords, Section 195 applies with no threshold. TDS must be deducted on every rupee of rent.
Q: What is the current TDS rate under Section 194IB for resident landlords?
2% effective October 1, 2024, reduced from 5% by the Finance (No. 2) Act 2024. Applies only when monthly rent exceeds ₹50,000 and the landlord is a resident Indian.
Q: What is the TDS rate on rent paid to an NRI landlord?
31.2% (30% base plus 4% Health and Education Cess) under Section 195. Applies on the full rent amount with no threshold.
Q: Is home loan interest deductible on rental income only in the old tax regime?
No. For a let-out property, the full home loan interest is deductible in both old and new regimes with no upper cap. The ₹2 lakh cap applies only to self-occupied property under the old regime. The key difference for let-out property is the loss set-off: old regime allows offset of house property losses against other income up to ₹2 lakh per year, new regime does not.
Q: Is TDS the final tax on rental income for NRIs?
No. TDS is advance tax at a flat 31.2%. Actual tax after deductions is almost always significantly lower. File ITR-2 to claim the refund.
Q: Which ITR form do NRIs file for rental income?
ITR-2.
Q: What happens if the tenant does not deduct TDS from rent paid to an NRI?
Penalty equal to the TDS amount under Section 271C and potential prosecution under Section 276B for the tenant. The NRI landlord remains liable for the underlying tax.
Q: Can NRIs receive rental income in their NRE account?
No. Rental income is India-sourced and must go into NRO account per RBI and FEMA regulations.
Q: Are NRIs eligible for the Section 87A rebate under the new tax regime?
No. The Section 87A rebate, which allows resident Indians to pay zero tax on income up to ₹12 lakh under the new regime, is not available to NRIs. NRIs are entitled to the basic exemption limit of ₹4 lakh under the new regime and ₹2.5 lakh under the old regime, but tax applies on income above those limits at the applicable slab rates without any rebate.
Q: Does DTAA reduce TDS on rental income from Indian property?
Not directly. Under most DTAAs, rental income from Indian property is taxed in India where the property is located. What DTAA provides is a mechanism to claim credit for Indian taxes paid when you file your tax return in your country of residence, preventing double taxation on the same income.
This article is for educational purposes only and does not constitute tax or legal advice. Tax rules are subject to change. All figures are for illustration only. Please consult a qualified tax advisor before making financial decisions.
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