NRI Taxation on Rental Income from Property in India | NRI Taxation and ITR filing

NRI Taxation on Rental Income from Property in India

Indian property owners living abroad and owning a home, apartment, shop or commercial premises in India can earn income by leasing it out. But any income earned from renting out property situated in India will be taxed in India irrespective of whether the property owner resides in some other nation. This knowledge on NRI taxation on rental income from property in India will enable NRIs not to pay any extra tax or face any penalty.

Tax Rules and Applicability

Rental income earned from property situated in India is generally taxable in India under the head Income from House Property. The owner's residential status does not exempt this income from Indian taxation.

The following points explain the basic tax treatment:

• Rental income from residential and commercial property located in India is generally taxable in India.
• The taxable amount is calculated after considering eligible municipal taxes and deductions.
• NRIs can generally claim a 30% standard deduction on the net annual value of let-out property.
• Eligible interest paid on borrowed capital for acquiring, constructing or repairing the property may also qualify for deduction, subject to applicable provisions.
• TDS deducted by the tenant can be claimed as tax credit while filing the Indian income tax return.

The final tax liability depends on the NRI's total taxable income and the applicable tax regime and rates for the relevant tax year.

How is Rental Income Taxed for NRIs in India?

Rental income from Indian property is generally assessed under the head Income from House Property. The computation depends on the property's annual value, municipal taxes and eligible deductions.

Tax Treatment of Let-Out Property

For a property rented to a tenant, the annual value is determined under the applicable income tax provisions. The owner can generally claim municipal taxes actually paid during the year, subject to the prescribed conditions.

After determining the net annual value, the owner can claim:

1. Standard deduction: A deduction of 30% of the net annual value.
2. Home loan interest: Eligible interest payable on borrowed capital used for acquiring, constructing, repairing or renewing the property, subject to applicable conditions.

The resulting income is added to the NRI's other taxable income in India and taxed according to the applicable provisions.

How to Calculate Tax on Rental Income for NRI?

The calculation of Tax on Rental Income for NRI begins with the rental income earned or receivable during the year from such property. Municipal taxes payable that qualify for deduction by the owner shall be subtracted to determine the net annual value. Following this, an allowance for 30% deduction as well as any interest paid on home loans becomes eligible for consideration. The balance will then be added to the other income of the NRI in India.

Taxable Rental Income = Gross Annual Rent – Municipal Taxes Paid – 30% Standard Deduction – Eligible Home Loan Interest 

Allowable Deductions on NRI Rental Income

The following deductions may be available:

• Municipal Taxes: Eligible municipal taxes paid by the property owner during the relevant financial or tax year.
• Standard Deduction: 30% of the net annual value.
• Home Loan Interest: Eligible interest payable on borrowed capital, subject to applicable conditions.

Principal repayment of a home loan is not a deduction under the standard house property computation. Any separate deduction depends on the applicable tax regime and statutory eligibility.

NRI Rental Income Tax Calculation Example

Suppose an NRI owns a residential property in India and receives annual rent of Rs. 6,00,000. The owner pays Rs. 20,000 in eligible municipal taxes during the year.

TDS on Rent Paid to NRI: Applicable Rates and Rules

TDS on rent paid to an NRI is governed by the non-resident payment provisions of Section 393(2), Table Serial No. 17 of the Income-tax Act, 2025, for payments or credits covered by the new Act from 1 April 2026.

Under this provision, tax must generally be deducted from a payment to a non-resident where the payment is chargeable to tax in India.

The applicable rate is described as the rates in force. Therefore, there is no single universal percentage that applies to every NRI rental payment. The applicable rate depends on the recipient's status, the nature of the payment, relevant tax provisions, surcharge and cess, and any applicable tax treaty relief or lower deduction certificate.

Who is Responsible for Deducting TDS on Rent Paid to an NRI?

The tenant or person responsible for making the rental payment must deduct TDS when the payment is subject to the applicable non-resident withholding provisions.

This responsibility applies even if the NRI property owner does not have a business establishment or physical presence in India.

The payer must generally:

• Verify the landlord's residential status and PAN.
• Determine the amount chargeable to tax and applicable withholding rate.
• Obtain and use TAN where required.
• Deduct TDS at the prescribed time.
• Deposit the deducted tax within the applicable deadline.
• File the relevant TDS statement and issue the prescribed certificate.

The landlord must verify the TDS credit and report rental income in the Indian income tax return, where filing is required.

Form 144 for TDS on Rent Paid to NRI: Filing Process and Due Dates

From 1 April 2026, Form 144 is the quarterly TDS statement used to report non-salary payments to non-residents under the Income-tax Act, 2025.

It replaces the earlier Form 27Q for the corresponding reporting purpose under the previous Income-tax Act, 1961.

The deductor must report relevant details of the non-resident recipient, payment, tax deducted and tax deposit.

Documents and Details Required for Form 144

The following information may be required for preparing and filing the TDS statement:

• Landlord details: Name, address, PAN and residential status.
• Tenant details: Name, PAN, TAN and contact information, as applicable.
• Payment details: Monthly rent, amount paid or credited and relevant dates.
• TDS information: Applicable deduction rate, tax deducted and deposit details.
• Tax treaty documents: Tax Residency Certificate (TRC) and Form 10F, where relevant for claiming treaty benefits.

How to Calculate Tax on Rental Income for an NRI?

The taxable income for renting will be determined by verifying the rent income, property taxes, and other permissible deductions. NRI rental income tax calculation will help the property owner ascertain his actual tax liability rather than depending upon the TDS charged by the tenant.

To calculate the taxable rental income, follow these procedures:

• Collect the TDS certificate issued by the tenant.
• Verify the TDS credit reflected in the relevant tax records.
• Calculate the actual taxable rental income.
• Include the rental income and eligible deductions in the applicable income tax return.
• Reconcile the tax deducted with the total tax liability.
• Claim the eligible refund through the income tax return.

In case the annual rent is Rs.6,00,000 and allowable municipal taxes are Rs.20,000, then net annual value will be Rs.5,80,000. After deducting 30 percent standard deduction of Rs.1,74,000 your taxable income will be Rs.4,06,000 without taking into account home loan interest.

How to Claim TDS Refund on NRI Rental Income?

An NRI may claim a TDS refund when the tax deducted by the tenant exceeds the actual income tax liability for the relevant year.

For example, the tenant may deduct TDS on rental payments, while the NRI's final taxable income becomes lower after eligible deductions and other applicable adjustments.

The general refund process involves:

1. Collect the TDS certificate issued by the tenant.
2. Verify the TDS credit reflected in the relevant tax records.
3. Calculate the actual taxable rental income.
4. Include the rental income and eligible deductions in the applicable income tax return.
5. Reconcile the tax deducted with the total tax liability.
6. Claim the eligible refund through the income tax return.

The refund is subject to processing and verification by the Income Tax Department. The NRI should also ensure that the bank account selected for receiving the refund meets the department's validation requirements.

How to Deduct TDS on Rent Paid to an NRI: Step-by-Step Process

The process must be followed correctly since any wrong calculation of tax deductions will pose challenges for both parties involved. The TDS rate on rent paid to an NRI is different from the TDS rate on domestic rent. In the event that payments are made after April 1, 2026, the applicable law is section 393(2), table serial number 17 of the Income Tax Act, 2025.

These include:

Follow these steps:

Step 1: Verify the landlord's residential status

Confirm whether the property owner qualifies as a non-resident under the applicable Indian income tax provisions for the relevant tax year.

Step 2: Obtain the landlord's PAN

Collect the landlord's PAN and verify the details. The absence of a valid PAN may result in higher TDS under the applicable provisions.

Step 3: Determine the applicable TDS rate

Identify the relevant provision under Section 393(2), Table Serial No. 17, and check the applicable rates in force. Consider any valid lower deduction certificate and relevant treaty documentation.

Step 4: Deduct TDS

Deduct tax at the applicable time, generally the earlier of credit or payment, as prescribed under the relevant provision.

Step 5: Deposit the deducted tax

Deposit the TDS within the prescribed deadline using the applicable payment procedure.

Step 6: File Form 144

Report the payment and TDS details in the quarterly statement within the prescribed filing deadline.

Step 7: Issue the TDS certificate

Provide the prescribed TDS certificate to the landlord so that the NRI can claim the corresponding tax credit while filing the Indian income tax return.

Lower or Nil TDS Certificate for NRI Rental Income

An NRI property owner may face substantial TDS deductions even when the final taxable income from the property is comparatively low. In such cases, the owner can explore an application for a lower or nil deduction certificate under Section 395(1) of the Income-tax Act, 2025.

The Assessing Officer may issue the certificate after examining the applicant's estimated income, eligible deductions and expected tax liability. Approval depends on the facts and supporting documents submitted with the application.

How to Apply for a Lower TDS Certificate?

The NRI can generally follow this process:

1. Calculate the estimated taxable rental income for the relevant tax year.
2. Determine eligible municipal tax and home loan interest deductions.
3. Estimate the total Indian tax liability after considering other taxable income.
4. Prepare the prescribed application, Form 128, under the Income-tax Rules, 2026.
5. Submit the application electronically with the required supporting information.
6. Respond to any clarification requested by the Assessing Officer.
7. Use the lower or nil deduction certificate after it has been issued and in accordance with its conditions and validity.

A separate provision, Section 395(2), allows the payer to apply for determination of the appropriate proportion of a payment to a non-resident that is chargeable to tax. The prescribed application for this purpose is Form 129.

These are different procedures and should not be treated as interchangeable. A lower deduction certificate is not automatic, and the tenant should follow the applicable certificate when making TDS deductions.

TDS Rules for NRI Property Owners

Property owners residing abroad have to be aware of the tax obligations pertaining to their property that is rented in India. Coordination between the owner and tenant needs to be ensured properly while applying TDS rules for NRI property owners to prevent tax notices, deductions and delays in receiving tax refunds.

Some of the rules that NRIs need to be aware of are:

1. Rent arising from property located in India is subject to tax in India.
2. Tax has to be deducted by the tenant in accordance with the provisions in the case of payments made to an NRI.
3. Domestic rent TDS limit has to be differentiated from the TDS on non-resident provisions.
4. Valid PAN has to be furnished by the owner for TDS deduction purposes.
5. NRIs have to declare their rental income and TDS credit in their Indian income tax return.
6. Rent agreement, bank statement, municipal tax receipts and loan interest receipts have to be maintained.
7. NRIs have to analyze the Double Taxation Avoidance Agreement of their residential country.

NRI Rental Income Tax in USA and India: Understanding Double Taxation

The DTAA provides rules for allocating taxing rights and addressing double taxation. A taxpayer who qualifies under the applicable treaty and domestic tax rules may be able to claim a credit for eligible Indian income tax paid against US tax on the same income.

For eligible US taxpayers, Form 1116 is generally used to calculate and claim the foreign tax credit, subject to applicable exceptions and limitations.

It is necessary to file the tax returns in India, maintain the TDS certificate and other records to prove tax payment in India.

Documents Required for Foreign Tax Credit

The following records can help support tax reporting and foreign tax credit claims:

• Indian income tax return acknowledgement.
• Indian tax payment records.
• TDS certificates issued by the tenant.
• Rental agreements and rent statements.
• Property-related expense and deduction records.
• Foreign tax credit calculation and supporting US tax documents.

NRIs should review their tax residency status in both countries and seek appropriate cross-border tax advice before claiming treaty relief.

Professional Assistance for NRI Rental Income Tax and ITR Filing

Rental management in India from abroad can turn into a complex task on account of varying regulations relating to tax, TDS deductions and filing income tax returns. There is also a possibility that owing to any discrepancies, excess TDS deductions or even tax notices can be issued. The role of professionals will facilitate such tasks.

CA Arpit Gupta & Co. provides assistance with the following services:

• NRI Rental Income Tax Calculation: Computation of taxable income from residential and commercial properties in India.
• TDS Compliance: Assistance with TDS provisions applicable to rent paid to non-resident property owners.
• ITR Filing for NRIs: Assistance with selecting the appropriate return form and reporting rental income.
• TDS Reconciliation: Verification of tax deducted by tenants and available tax credits.
• Lower TDS Certificate Assistance: Support with preparing applications and documentation for lower or nil deduction certificates.
• DTAA Guidance: Assistance with understanding applicable tax treaty provisions and foreign tax credit requirements.
• Tax Notice Assistance: Support with reviewing income tax notices and preparing appropriate responses.

If you require help in filing ITR for rental income of NRI, choose the right ITR form and deductions, and contact CA Arpit Gupta at +91-7081220600.