NRI Rental Income from India: Tax Rates, TDS & Repatriation Guide

The Tax Reality of NRI Rental Income in India

As an NRI, your rental income faces a 31.2% TDS deduction at source -- more than three times the rate applied to resident Indian landlords. Your tenant is legally obligated to deduct this tax before paying you a single rupee of rent, regardless of the rental amount.

This guide breaks down every component of NRI rental income taxation for FY 2025-26 (AY 2026-27): the TDS mechanics, your actual tax liability under both tax regimes, how to reduce TDS through certificates, the DTAA relief available in your country of residence, and the precise process for repatriating rental income abroad through Form 145 and Form 146 (formerly Forms 15CA and 15CB).

TDS on NRI Rental Income: Section 195

Under Section 195 of the Income Tax Act, 1961 (for tax years beginning on or after 1 April 2026, section 393(2) of the Income-tax Act, 2025 (Table, Sl. No. 17)), any person making a payment to an NRI must deduct Tax at Source (TDS). This applies to rental payments without any threshold -- unlike rent paid to resident landlords, where TDS under Section 194-I applies only when monthly rent exceeds INR 50,000 (the Finance Act, 2025 replaced the earlier INR 2.4 lakh annual threshold from April 2025).

TDS Rate Breakdown for FY 2025-26

If the NRI's total Indian income exceeds INR 50 lakh, surcharge applies:

(Income above INR 5 crore attracts a 37% surcharge under the old regime; the new tax regime caps the surcharge at 25%.)

Tenant's TDS Obligations

The tenant -- not the NRI landlord -- bears the legal obligation to:

1. Obtain a TAN (Tax Deduction and Collection Account Number) from the Income Tax Department
2. Deduct TDS at 31.2% from every rent payment, regardless of the amount
3. Deposit the TDS with the government by the 7th of the following month (April 30 for TDS deducted in March)
4. File quarterly TDS returns (Form 144 (formerly Form 27Q)) within the prescribed due dates
5. Issue Form 16A (TDS certificate) to the NRI landlord within 15 days of filing the quarterly return

Practical problem: Many individual tenants are unaware of their TDS obligation when renting from NRIs. If a tenant fails to deduct TDS, the entire rent can be disallowed as a business expense under Section 40(a)(i) of the Income Tax Act, 1961 (the 30% disallowance applies only to payments to residents; from 1 April 2026, section 35(b)(ii) of the Income-tax Act, 2025), plus interest at 1% per month on the undeducted amount. As a landlord, proactively inform your tenant about these requirements and provide them your PAN to facilitate compliance.

Actual Tax Liability: Old Regime vs New Regime

The TDS deducted at 31.2% is not your final tax liability. Your actual tax is calculated based on the income tax slab rates under the regime you choose. For FY 2025-26, the New Tax Regime under Section 115BAC (section 202 of the Income-tax Act, 2025, from 1 April 2026) is the default, but NRIs can opt for the Old Tax Regime if it results in lower tax.

Income Tax Slabs -- New Regime (Section 115BAC) FY 2025-26

Income Tax Slabs -- Old Regime FY 2025-26

Important NRI-specific rule: NRIs do not get the enhanced basic exemption limit available to senior citizens (60+) and super senior citizens (80+) under the old regime. The basic exemption for NRIs remains INR 2.5 lakh regardless of age under the old regime.

Regime Choice: Which Is Better for Rental Income?

For NRIs with rental income as their primary Indian income:

• New Regime advantage: Higher basic exemption (INR 4 lakh vs INR 2.5 lakh), graduated slabs reduce effective rate on moderate incomes. A 30% standard deduction on rental income is available under both regimes.
• Old Regime advantage: Allows deductions under Chapter VI-A (Section 80C, 80D, etc.), and a loss from house property (for example, where home loan interest exceeds the net rent) can be set off against other income up to INR 2 lakh per year. If you have a large home loan on the rented property, the old regime may save more tax.

NRIs earning non-business income (salary, interest, rental income) can switch between regimes every year. This flexibility means you should calculate tax under both regimes each year and choose the more beneficial one.

Computing Taxable Rental Income

Your taxable rental income is not the gross rent received. The Income Tax Act provides specific deductions:

Step 1: Determine Gross Annual Value (GAV)

The GAV is the higher of:

• Actual rent received or receivable
• Municipal rateable value (in most cases, actual rent exceeds this)

Step 2: Deduct Municipal Taxes

Subtract any local property taxes, water taxes, or sewerage charges actually paid during the year. This gives you the Net Annual Value (NAV).

Step 3: Standard Deduction of 30%

A flat 30% of NAV is allowed as a standard deduction under both old and new tax regimes. This covers all expenses -- maintenance, repairs, insurance, vacancy -- in a single deduction. You cannot claim actual expenses separately.

Step 4: Home Loan Interest Deduction

Under Section 24(b) (section 22 of the Income-tax Act, 2025, from 1 April 2026), interest paid on a home loan for a let-out property is fully deductible under both regimes -- the new-regime restriction on Section 24(b) applies only to self-occupied property. The real difference: under the old regime, a resulting loss from house property can be set off against other income up to INR 2 lakh a year; under the new regime it cannot be set off against other heads.

Worked Example

In this example, the taxable income of INR 2,09,500 falls below the basic exemption limit under either regime (INR 2.5 lakh old, INR 4 lakh new) -- zero tax liability. Yet TDS of INR 1,87,200 (31.2% of INR 6,00,000) was already deducted. The NRI can claim a full refund by filing an income tax return.

Lower TDS Certificate: Reducing the 31.2% Bite

The most effective tool for NRI landlords is the Lower Deduction Certificate under Section 197 of the Income Tax Act (section 395(1) of the Income-tax Act, 2025, from 1 April 2026). This allows you to get TDS reduced to your actual tax rate, or even to nil.

Application Process

1. File Form 13 online on the Income Tax e-filing portal (incometax.gov.in)
2. Documents required: PAN, last 3 years' ITRs, projected income and tax computation for the current year, details of the tenant, and the lease/rental agreement
3. Validity: The certificate is issued for the specific financial year and the specific tenant

Once issued, provide the certificate to your tenant. The tenant then deducts TDS at the reduced rate specified in the certificate rather than the standard 31.2%. If your actual tax liability is nil (as in the worked example above), the certificate will authorize nil TDS deduction.

Pro tip: Apply for the certificate at the beginning of each financial year (April) to maximize the benefit. If you apply mid-year, TDS already deducted at 31.2% in earlier months can only be recovered through your ITR filing.

Rental Agreement Structuring for NRIs

How you structure the rental arrangement directly impacts your tax and compliance burden:

Direct Renting to a Tenant

The NRI enters into a lease agreement directly with the tenant. The tenant handles TDS compliance. This works well when the tenant is a corporate entity (which already has TAN and TDS infrastructure). Individual tenants often struggle with TDS compliance.

Appointing a Property Manager

Many NRIs appoint a property management company or a trusted individual through a Power of Attorney. The property manager handles tenant screening, rent collection, maintenance, and coordinates TDS compliance.

Renting Through a Company

If the NRI owns the property through an Indian company (common for commercial properties), rental income is taxed at corporate rates and TDS dynamics change. This structure is more relevant for foreign subsidiaries holding commercial real estate.

DTAA Relief: Avoiding Double Taxation

Rental income earned in India is also reportable in your country of residence. Without relief, you pay tax twice on the same income. Double Taxation Avoidance Agreements (DTAAs) between India and your country of residence provide relief through two mechanisms:

Tax Credit Method (Most Common)

Tax paid in India on rental income is allowed as a credit against your tax liability in your country of residence. This is the primary mechanism used by India's DTAAs with the US, UK, Canada, Australia, and most European countries.

Country-Specific DTAA Application

Claiming DTAA Benefits in India

A DTAA does not cap Indian tax on rental income: under the immovable-property article (Article 6 in most Indian treaties), India as the country where the property is situated retains full taxing rights, so the treaty's relief comes through the credit mechanism in your country of residence. To take a treaty position in India, you must:

1. Obtain a Tax Residency Certificate (TRC) from the tax authority of your country of residence
2. File Form 41 (formerly Form 10F) electronically on the Indian Income Tax portal (portal registration is required to e-file it, and a non-PAN registration route exists for non-residents)
3. Provide both documents to the tenant before the first rent payment

Repatriating Rental Income: Forms 145 and 146

Rental income is classified as current income and can be freely repatriated from India, subject to tax compliance and the Forms 145 and 146 process.

Repatriation Limits

Rental income is current income under FEMA. The RBI permits remittance of current income (rent, dividend, pension, interest) from an NRO account without a monetary ceiling once applicable taxes are paid -- the RBI's FAQ on accounts in India by non-residents lists remittance of current income abroad as a permissible NRO debit. The widely quoted USD 1 million per financial year limit applies to remittance of assets -- NRO balances representing capital, such as sale proceeds of property or inherited assets -- under the Foreign Exchange Management (Remittance of Assets) Regulations, 2016, not to current rental income. Banks will still require the Forms 145 and 146 tax-compliance documentation before remitting.

When Are Forms 145 and 146 Required?

Step-by-Step Repatriation Process

1. Ensure taxes are paid: File your Indian ITR for the relevant year, or ensure TDS has been properly deducted by the tenant
2. Engage a Chartered Accountant: For taxable remittances exceeding INR 5 lakh (unless you hold an Assessing Officer's lower/nil deduction certificate), obtain Form 146 from a CA. The CA verifies tax compliance, source of funds, and applicable DTAA provisions
3. File Form 145 online: Log into the Income Tax e-filing portal and file Form 145 using the Form 146 certificate reference. Since 2021, this is fully online using DSC or EVC
4. Submit to your bank: Provide the Form 145 acknowledgment and Form 146 certificate to your NRO bank branch. The bank then processes the remittance to your overseas account

Penalty for non-filing: INR 1,00,000 per form under Section 271-I (section 462 of the Income-tax Act, 2025) for failure to file or filing with incorrect information.

ITR Filing Requirements for NRI Landlords

Even though TDS is deducted, NRIs earning rental income in India must file an Income Tax Return (ITR) if:

• Total Indian income exceeds the basic exemption limit (INR 4 lakh under new regime, INR 2.5 lakh under old regime)
• TDS has been deducted and you want to claim a refund (which is almost always the case given the 31.2% TDS rate)
• You want to carry forward losses (e.g., loss from house property due to home loan interest)

Which ITR Form?

• ITR-2: For NRIs with rental income, capital gains, interest income, and no business income
• ITR-3: For NRIs who also have business or professional income in India

Due Dates

The ITR filing due date for NRIs without audit requirements is July 31 of the assessment year, unless extended by the CBDT for that year. Filing with professional tax advisory support is recommended to ensure accurate regime selection and refund claims.

Common Mistakes NRI Landlords Make

• Not informing the tenant about NRI status: If the tenant does not know you are an NRI, they may deduct TDS at the resident rates (10% under Section 194-I, or 2% under Section 194-IB for individual tenants paying rent above INR 50,000 a month) instead of 31.2%. This creates tax shortfall and penalties for the tenant.
• Depositing rent in a resident savings account: After becoming an NRI, all Indian income must flow through NRE/NRO accounts. Receiving rent in a resident savings account is a FEMA violation.
• Not applying for a Lower TDS Certificate: Most NRI landlords overpay tax through the 31.2% TDS rate. A Section 197 certificate can reduce this to the actual slab rate or nil.
• Ignoring advance tax: If your expected tax liability after TDS exceeds INR 10,000, you must pay advance tax in quarterly instalments. Failure attracts interest under Sections 234B and 234C.
• Not claiming DTAA benefits: NRIs in the US, UK, Canada, and Australia often pay tax on the same rental income in both countries because they do not claim Foreign Tax Credits.
• Mixing personal and rental expenses: Only the statutory 30% standard deduction and home loan interest (old regime) are allowed. Actual repair, maintenance, or painting expenses cannot be claimed separately.

Multiple Properties: Aggregating Rental Income

Many NRIs own more than one property in India. The tax treatment of multiple rental properties has specific rules that are frequently misunderstood:

Self-Occupied Property Benefit

Since the Finance Act, 2019, taxpayers including NRIs can designate up to two properties as self-occupied without paying tax on notional rental value; before that, notional rent was taxable on every property beyond the first self-occupied one. The Budget 2025-26 amendments went further, removing the conditions attached to the nil annual value so that it applies regardless of the reason the owner does not occupy the house. If you own three properties and two are vacant (not rented out), you can designate two as self-occupied and only pay tax on the notional rental value of the third.

Aggregation of Rental Income

All rental income from all Indian properties is aggregated and taxed as a single head -- "Income from House Property." The 30% standard deduction applies to the aggregate Net Annual Value. Home loan interest deductions are calculated per property but the total deduction is aggregated.

Loss from House Property

If your home loan interest on a rented property exceeds the net rental income after the 30% standard deduction, you incur a loss from house property. Under the old regime, this loss can be set off against other income (salary, interest) up to INR 2 lakh per year. Any excess loss can be carried forward for 8 years and set off against future house property income. Under the new regime, a house property loss cannot be set off against other heads of income at all -- it can only be adjusted against other house property income.

TDS on Multiple Tenants

Each tenant independently deducts TDS at 31.2%. If you have three tenants across three properties, each must obtain their own TAN, deduct TDS, file quarterly returns, and issue Form 16A. The aggregate TDS from all tenants is reflected in your Form 168 (formerly Form 26AS) (Annual Tax Statement) on the Income Tax portal. Verify this annually to ensure all TDS is properly credited to your PAN.

NRO vs NRE Account for Rental Income

Rental income from Indian property must be deposited into an NRO account. It cannot be directly deposited into an NRE account because rental income is earned in India, and only permitted credits (such as foreign remittances and NRO transfers that have completed the Forms 145 and 146 repatriation formalities) can enter an NRE account.

Once you complete the repatriation formalities, the funds can be transferred from NRO to NRE account or directly to your overseas bank account. Interest earned on the NRO account balance (where rent accumulates) is also taxable in India at applicable rates, with TDS at 30% plus applicable surcharge and cess.

Key Takeaways

• TDS on NRI rental income is 31.2% (30% + 4% cess) under Section 195, deducted by the tenant regardless of rent amount -- there is no threshold
• Your actual tax liability is often much lower than 31.2% -- apply for a Lower TDS Certificate under Section 197 at the start of each financial year to reduce over-deduction
• NRIs can choose between old and new tax regimes each year for non-business income -- calculate under both to find the more beneficial option
• Claim DTAA benefits in your country of residence to avoid double taxation -- obtain a Tax Residency Certificate and file Form 41 in India
• Repatriation of rental income requires Form 145 (and Form 146 from a CA for amounts exceeding INR 5 lakh) -- penalty for non-filing is INR 1,00,000 per form
• Rental income must be deposited in an NRO account, not a resident savings account or NRE account