The below content is purely for informational purposes and is not intended to constitute advisory of any kind. Please note, these are in-depth articles which are best viewed on large screen devices like laptops, desktops and tablets. The position reflected in this article has been updated as of March 15, 2025 basis the Union Budget 2025-2026 updates.
As a Non-Resident Indian (NRI)/Overseas Citizen of India (OCI)/Person of Indian Origin (PIO) renting out an immovable property in India, you might want to understand how taxes are to be paid. With more and more NRIs becoming property owners (commercial and residential) in India, rent can be yet another source of income. It is crucial to get a grasp of the tax regulations to make smart choices and be compliant with the Indian tax laws.
You are required to file your Income Tax Return (ITR) as per the Income Tax Act, 1961 if your total income including rent:
Exceeds the threshold of exemption, i.e., ₹2.5 lakh as per the old tax regime or ₹4 lakh* as per new (default) tax regime;
*The Finance Act 2025.
Let us understand this with the help of an illustration.
Rohit is an NRI who owns a house in India. He is looking to find a tenant for his house. To be compliant with the Indian tax laws, he will need to:
Open a Non-Resident Ordinary (NRO) account to receive the rental income. The rental income is treated as current income for that Financial Year (April-March) and can be freely repatriated, i.e., transferable in that year, subject to necessary tax compliances and documentation, if applicable.
Open a Non-Resident External (NRE): He can receive the rental income in an NRE account only from another NRE account i.e., if he is renting his property to an NRI. Your tenant cannot transfer this income from an ordinary resident savings account to an NRE account. Rohit can choose to register the lease rental agreement. Indian registration authorities provide a facility to register the agreement online, which is also available to NRIs. On the Indian income tax portal, he can validate his Form 26AS, Annual Information Statement (AIS)/Taxpayer Information Summary (TIS) with the following details:
Rent received/receivable;
TDS thereon deducted by his tenant.
Obtain the TDS Certificate (Form 16A) from the tenant.
While the responsibility to deduct TDS on rent lies with the tenant, Rohit is responsible for ensuring that the correct amount of rent and TDS duly reflects in his Form 26AS. If he finds a mismatch between the TDS and the amount being reflected in Form 26AS, he should inform the income tax department through their website and also request the tenant for corrective action.
What is deemed rent?
The concept of deemed rent comes into effect when an individual taxpayer owns more than two house properties. In such a case, if the third property is vacant, then a deemed rent for the financial year needs to be offered to tax. Deemed rent refers to the estimated annual rental income that the property is reasonably expected to generate NRIs who own more than two residential properties that are not rented out, must declare the deemed rent as rental income from their third property onwards while filing ITR. One can designate any two properties with the highest rental value as self-occupied, while the property with the lower rental value can be considered as deemed let-out for tax purposes.
So, while filing the Income Tax Return (ITR), Rohit must:
Declare the rent (whether actual or deemed) that he is entitled to receive from all their his properties in India;
Evaluate the possibility of availing deductions, such as municipal taxes, standard deductions and interest paid on home loans.
The deductions available under the old and new tax regime
Old tax regime
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Nature of expense | Self-occupied property | Let out property | Deemed let out property |
|---|---|---|---|
Property tax |
Nil |
Amount paid |
Amount paid |
Standard deduction |
Nil |
(Rent reduced by property tax) *30%, irrespective of actual expenditure |
(Rent reduced by property tax) *30%, irrespective of actual expenditure |
Interest on home loan |
Interest paid on loan borrowed, including 1/5th of the total amount of pre-construction interest. However, the maximum deduction available is ₹200,000 |
Interest paid on loan borrowed, including 1/5th of the total amount of pre-construction interest |
Interest paid on loan borrowed, including 1/5th of the total amount of pre-construction interest |
New tax regime
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Nature of expense | Self-occupied property | Let out property | Deemed let out property |
|---|---|---|---|
Property tax |
Nil |
Amount paid |
Amount paid |
Standard deduction |
Nil |
(Rent reduced by property tax) *30%, irrespective of actual expenditure |
(Rent reduced by property tax) *30%, irrespective of actual expenditure |
Interest on home loan property |
Nil |
Interest paid on loan borrowed including 1/5th of the total amount of pre-construction interest |
Interest paid on loan borrowed including 1/5th of the total amount of pre-construction interest |
Quick Tip
If the income from your house property results in a loss, you are only allowed to set off a loss of ₹2 lakh against 'income from other heads' in the same tax years. The remaining balance can be carried forward for up to eight tax years and can only be set off against 'income from house property'
Other Tax Considerations:
The tax rate for TDS on rent to NRI is 30% (Section 195 of the Income Tax Act, 1961, read with the Finance Act, 2025) plus applicable surcharge and Health and education cess, cumulatively capped at a maximum of 39%* as per the new tax regime under the Income Tax Act, 1961.
Please note that rental income is always taxable on an accrual basis and not on receipt basis
NRIs should refer to the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to prevent double taxation on rental income. For example, in the USA, rental income is taxed in the country where the property is located. Therefore, rental income from immovable property in India is taxed in India, and NRIs can claim credit of such taxes while filing their tax returns in the USA.
It must also be noted that if total gross rental income (before TDS) from commercial property in India in any year exceeds ₹20 lakhs, then GST implications should also be considered. Additionally, other incomes (such as interest income, rental income from residential property etc) may need to be included when calculating the said limit . The tax payer should contact tax expert to better understand the provisions for the same.
*As per provision of section 195 of the Income Tax Act, 1961 (“The Act”) read with item 1(b)(O) of the Part II of first schedule of Finance Act, 2024, for tax at the rate of 30% and surcharge at the rate of 25% on tax as per section 115BAC being default regime, and cess at the rate of 4% on tax and surcharge. Aggregating to maximum tax rate of 39%
Did you know?
You can opt to claim a deduction of up to ₹1.5 lakh for the principal repayment of home loans under the old tax regime. This limit falls within the overall cap for deductions under Chapter VIA, which includes other payments, such as life insurance premiums, principal sum of a home loan, Investment made in Equity Linked Saving Schemes, etc.
Tax obligations: Know your responsibilities
The responsibility of deducting TDS on rent and depositing it with the tax authorities lies solely with your tenant.
However, if your tenant fails to deduct the TDS on rent and has paid gross rent, you are obligated to pay the advance tax on such taxable rent. In case you don’t pay advance tax, the same can be paid as self-assessment tax along with interest (if applicable) on or before the filing of your ITR.
Amit, an NRI owns two flats in Maharashtra, India. He has let out his first flat in Pune and receives ₹50,000 monthly rent for it. Amit has paid a property tax of ₹25,000 to local authorities towards such property. This expense is a permissible deduction while computing income tax. As he has not obtained a ‘Lower Deduction Certificate’ (NRIs can apply for a certificate to reduce their TDS), the tenant deducts tax at the rate of 31.2% (As per section 195, TDS will be deducted at 30% plus applicable cess) on the rent due. His second flat in Mumbai is classified as a ‘self-occupied property’ as his parents live there. He had taken a home loan to purchase this property. While he pays Equated Monthly Installments (EMIs) of ₹1,50,000 towards the loan, the interest payable on the loan is of ₹50,000 and principal repayment is of ₹1,00,000 can be claimed as a deduction under the old tax regime. Further, Amit has also earned ₹200,000 under the head income from other sources.
In such case depending upon the tax regime opted by Amit, his income computation would be as follows:
Please note, tables are best viewed on desktops or in landscape mode on mobile phones. On mobile phones, please swipe to view all content.
| Particulars | Old regime (In INR ) | New regime (In INR) |
|---|---|---|
Income From house property |
||
Pune (let out property) |
||
Rent received |
6,00,000 |
6,00,000 |
Less: Annual property tax paid |
(25,000) |
(25,000) |
Net Annual Value |
5,75,000 |
5,75,000 |
Less: Standard Deduction @30% |
(1,72,500) |
(1,72,500) |
4,02,500 |
4,02,500 |
|
|
||
Mumbai (self- occupied property) |
||
Rent received |
Nil |
Nil |
Less: Deduction on interest paid on home loan |
(50,000) |
Nil |
(50,000) |
Nil |
|
Total income from house property |
3,52,500 |
4,02,500 |
Total income from other sources |
2,00,000 |
2,00,000 |
Gross total income |
5,52,500 |
6,02,500 |
Less: Chapter VIA deduction* |
||
Principal repayment of home loan |
(1,50,000) |
Nil |
Net total income |
4,02,500 |
6,02,500 |
Tax liability (as per tax slabs) |
7625 |
10,125 |
Add: Health and education cess@4% |
305 |
405 |
Total tax liability |
7,930 |
10,530 |
Less: TDS @31.2% deducted by the tenant on rent received |
(1,87,200) |
(1,87,200) |
Refund |
(1,79,270) |
(1,76,670) |
In the above case, if Amit’s tenant deducts ₹1,87,200 but erroneously reports only ₹1,80,000 in the TDS returns filed, Amit’s Form 26AS will also show a lower amount of TDS. Amit needs to ensure that the same is corrected by the tenant in order to claim the full amount of TDS credit while filing his tax return in India. Amit should also submit the feedback on the portal that the TDS of ₹1,80,000 is incorrect.
Conclusion
Income originating from an Indian property can be credited to your NRE/NRO accounts, allowing for convenient repatriation. This income is taxable in India and must be reflected you ITR. You should speak to a tax expert to understand the tax implications on your rental income.
Disclaimer:
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