NRI Income Tax & Compliance

How is Rental Income Taxed for NRIs in India?

Rental Income Taxed for NRIs

NRIs' rental income falls under the head 'Income from House Property', under the Income Tax Act, 1961. Tenants renting a property from NRIs need to deduct TDS at 31.2% from the overall rent. The key components of calculating rental income include gross annual value, minus municipal taxes, net annual value, minus standard deduction, minus home loan interest, and taxable income from house property.

However, you can reduce their taxable rental income in India by claiming several deductions. It includes a standard deduction of 30%, a deduction of Rs. 1.5 lakh per annum under Section 80C, and more. NRIs may often face the situation of double taxation, which can be avoided by claiming the DTAA treaty. To claim a refund on the TDS deducted and carry forward losses, you must file an ITR. Use ITR-2 (NRIs with income from salary, house property, and capital gains) or ITR-3 (NRIs with income from business or profession) to file income tax returns.

Upon receiving rental income in the NRO account, you can transfer it to your overseas account. Keep reading further to know more about NRI rental income taxation, available deductions, DTAA benefits, and much more.

Key Takeaways
  • NRIs' rental income is taxed regardless of the tenant's nationality, where the rent is received, or whether the property is residential or commercial.
  • The basic formula for calculating taxable rental income is: Taxable income = [(GAV- Municipal Taxes) - 30% standard deduction - Home Loan Interest].
  • The standard deduction of 30% and home loan interest deduction are available under both the old and new tax regime. However, the Section 80C deduction is only available under the old tax regime.
  • Filing an ITR becomes mandatory for NRIs if they wish to claim a refund for excess deducted TDS or carry forward losses. Also, if their total Indian income exceeds Rs. 2.5 lakh per year (old regime) or Rs. 4 lakh per year (new regime).
  • NRIs cannot use the ITR-1 Form to file Income Tax Returns. Instead, NRIs with income from salary, house property, and capital gains must use ITR-2. Also, NRIs with income from a business or profession must use ITR-3.

Is Rental Income Taxable for NRIs in India?

Yes, rental income earned from a property situated in India is fully taxable in India for NRIs, without any exception. This applies regardless of:

  • The tenant's nationality
  • Where the rent is received (Indian or foreign bank account), and
  • Whether the property is residential or commercial.

Under the Income Tax Act, 1961, an NRI's rental income falls under the head 'Income from House Property'. The same classification is also used for resident Indians. However, there is one key difference, which is that tenants renting from NRIs are legally required to deduct TDS (Tax Deducted at Source). On the other hand, residential landlords are usually not subject to individual tenants.

How is Rental Income Calculated for Tax Purposes?

Calculating taxable rental income helps NRIs to understand their obligations under Indian tax laws. It helps determine how much of the rental earnings from an Indian property is subject to taxation after the eligible deductions. Here is the process to calculate rental income for tax purposes:

Component Description
Gross Annual Value (GAV)
  • It is the total annual rent receivable (or expected fair market rental value, whichever is higher). 
  • For let-out property, this is generally the actual rent received.
Less: Municipal Taxes
  • Deduct municipal/ property taxes paid to the local government during the year.
  • Only taxes actually paid during the year are deductible.
Net Annual Value (NAV)
  • NAV = GAV minus municipal taxes.
  • It is the base for further deductions.
Less: Standard Deduction (30%)
  • A flat deduction of 30% on NAV is allowed.
  • No receipts or proof are required.
  • It includes cover receipts, maintenance, insurance, and other incidental expenses.
Less: Home Loan Interest
  • Interest paid on a home loan taken for the let-out property.
  • Fully deductible for let-out properties (no upper limit)
  • Capped at Rs. 2 lakh per year for self-occupied properties.
Taxable Income from House Property
  • The final amount after all deductions.
  • Added to the total Indian income and is taxed as per the applicable slab rates.

These are the components calculated when determining rental income for tax purposes. Let's understand the calculation easily with the help of an example. Here is an example of an NRI earning rental income from an apartment in Pune in FY 2025-26:

Example: Neha is an NRI in the USA. She has a flat rented in Pune at Rs. 50,000 / month
Annual Gross Rent (Rs. 50,000 * 12) Rs. 6,00,000
Less: Municipal Taxes Paid - Rs. 25,000
Net Annual Value (NAV) Rs. 5,75,000
Less: Standard Deduction (30% of NAV) -Rs. 1,72,500
Less: Home Loan Interest (let-out, no limit) -Rs. 2,00,000
Taxable Income from House Property Rs. 2,02, 500
TDS deducted vs actual tax liability
TDS deducted by tenant (31.2% of Rs. 6,00,000) Rs. 1,87,200
Actual tax on taxable income of Rs. 2,02,500 (5% slab) ~Rs. 0 - Rs. 1,250
TDS refund claimable by filing ITR Rs. 1,85,950

This example shows why filing an ITR is financially important for NRIs. The TDS rate (31.2%) is usually higher than the actual tax liability after deductions. Additionally, the excess can only be reclaimed by filing a return.

What are the Deductions NRIs can Claim on Rental Income?

NRIs can reduce their taxable rental income in India. They can do this by claiming the eligible deductions and exemptions under Indian tax laws. The following are some deductions and exemptions available for NRIs:

Standard Deduction: Your Net Annual Value (NAV) of maintenance and related expenses gets a flat deduction of 30%, regardless of the actual costs. 

Paid Property Taxes: Municipal or property taxes paid in the financial year can be deducted completely from rental income.

Repaying the Principal Amount (Section 80C): Under Section 80C, principal repayment on housing loans is deductible with a maximum deduction of Rs. 1.5 lakh per annum. 

Loss-Set Off: If home loan interest exceeds rental income, the resulting loss can be set off against other Indian income and carried forward up to 8 years.

Other Exemptions: You can claim other exemption of deductions on qualified loans or property depreciation and more, including Section 80EE. 

**Note: The 30% standard deduction and home loan interest deduction (Section 24B) are available under both the old and new tax regimes. However, the Section 80C deduction for home loan principal repayment is only available under the old tax regime. Additionally, NRIs who have significant home loan interest, the old regime results in lower tax liability. You must ensure to calculate both before filing.

How to Use the DTAA to Avoid Double Taxation?

NRIs may often face a situation of double taxation. It means that when the same rental income from India is taxed twice, once in India and again in your country of residence. India has a DTAA agreement with more than 90 countries that helps prevent the risk of double taxation on the same income.

It helps to claim the foreign tax credit on taxes paid in India, thereby reducing the liability. Here's how the DTAA treaty works with the exemption and tax credit method:

DTAA Relief Method How it Works Countries Using It

Exemption Method
  • Income earned in India is fully exempt from tax in the country of residence.
  • No credit mechanism is needed
 Some provisions in the UAE and Bahrain treaties
Tax Credit Method (Most Common)
  • You pay tax on rental income in India.
  • When filing taxes in your resident country, you can claim a foreign tax credit (FTC) for taxes already paid in India.
  • Net tax is equal to the difference and not double the amount.
 USA, UK, Canada, Australia, Singapore, Germany, and several other countries.

When do NRIs with Rental Income Need to File ITR?

For NRIs, filing an Income Tax Return (ITR) is more than just a legal obligation. It's the only way for NRIs to claim a refund on excess TDS deducted and carry forward property losses. It also helps you to create a clean tax record for future transactions. Here are some situations when filing ITR becomes mandatory for NRIs:

When is Filing ITR Mandatory for NRIs?

Filing an ITR becomes mandatory for NRIs when:

  • You have to refund claims due to excess TDS.
  • You wish to carry forward the house property loss to future years.
  • Foreign assets or income needs to be disclosed in Schedule FA or Schedule FSI.
  • Total Indian income (including rental) exceeds Rs. 2.5 lakh per year (old regime) and Rs. 4 lakh per year (new regime).

Which Form to Use for ITR Filing?

Selecting the correct form while filing ITR is important to ensure compliance. Here are the ITR forms you need to use:

Form Usage
ITR-1 (Sahaj) NRIs cannot use ITR-1. It is only for resident individuals.
ITR-2 NRIs with income from salary, house property, and capital gains (most common for rental income)
ITR-3 For NRIs who also have income from a business or profession.

How to Repatriate Rental Income Abroad?

Once you receive rental income in your NRO account in India, you can transfer it to your overseas account. This process is known as repatriation and is governed by the regulations of FEMA and RBI guidelines. Here is how you can repatriate rental income abroad:

Ensure Rent is Credited to an NRO Account: Rental income must first flow into an NRO account. In case it is credited elsewhere mistakenly, transfer it to an NRO account before proceeding with the repatriation process.

Pay all Applicable Taxes: Before repatriation, ensure to pay all Indian taxes on the rental income. The TDS deducted by the tenant is counted towards this. If any additional tax is due, it must be settled through advance tax or self-assessment tax.

Obtain Form 15CB from a CA: Consult a practicing Chartered Accountant to issue Form 15CB. It is required when the remittance amount exceeds Rs. 5 lakhs. This form will certify that all taxes have been paid and DTAA provisions have been considered (if applicable).

File Form 15CA online: Submit Form 15CA on the income tax e-filing portal using details from Form 15CB. It serves as a self-declaration of the remittance and must be filed before the bank initiates the transfer.

Submit the Form to Your Bank and Initiate the Transfer: Submit Form 15CA/15CB to your Indian bank. Then, the bank will process the international wire transfer (SWIFT). Additionally, the repatriation limit from NRO is capped at 1 million USD per financial year.

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The Bottom Line

As an NRI, you must have an idea of how the rental income will be taxed to manage the property earnings in India effectively. Having good knowledge about taxation, deduction, TDS compliance, and DTAA benefits can help you pay less and avoid penalties. To know the basic rules of how rental income is calculated, the applicable deductions, and compliance steps, seek guidance from Savetaxs.

At Savetaxs, we have a team of experts who can help you stay compliant with the rental income taxation rules for NRIs in India. Our team of experts can offer guidance on the available deductions, compliance steps, calculations, and much more. Connect with us right away, as we are working 24/7 across all time zones.

Glossary
  • Double Taxation Avoidance Agreement (DTAA): DTAA, an Agreement Signed Between the Countries to Avoid Double Taxation.
  • Gross Annual Value: Gross Annual Value, Total Income Earned From Immovable Property, such as Commercial or Residential.
  • Income Tax: Income Tax, a Type of Direct Tax, is Imposed by the Government on the Income of Individuals or Organisations.
  • Income Tax Act: Income Tax Act, an Act to Manage and Govern the Direct Taxes, by Levying, Collecting, and Administering.
  • Income Tax Return: Income Tax Return, Filed by Taxpayers, Contains a Formal Record of the Collected Tax by the Government.
  • ITR Form: Income Tax Return form, a form to report annual income and taxes, used by taxpayers.
  • Tax Deducted at Source (TDS): The Full form of TDS is Tax Deducted at Source, which is a way to collect the income tax.
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Note: This guide is for information purposes only. The views expressed in this guide are personal and do not constitute the views of Savetaxs. Savetaxs or the author will not be responsible for any direct or indirect loss incurred by the reader for taking any decision based on the information or the contents. It is advisable to consult either a CA, CS, CPA or a professional tax expert from the Savetaxs team, as they are familiar with the current regulations and help you make accurate decisions and maintain accuracy throughout the whole process.

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Frequently Asked Questions

Yes, it is one of the key reasons why NRIs must file an ITR in India. After claiming all the available deductions, your actual tax liability will often be lower than the TDS deducted at 31.2%. It includes 30% standard, municipal tax, and home loan interest. Filing an ITR will help NRIs to claim a refund for the excess TDS deducted, which will be credited directly to your NRO account. 

You don't need to pay tax on the same income twice if a DTAA exists between India and your resident country. You must declare the Indian rental income in your foreign tax return under the tax credit method. However, you can claim a credit for the taxes you have already paid in India. The only difference here is the net tax and not a double charge. 

If your property is let out for part of the year and vacant for the rest, the GAV is considered based on the actual rent received for the let-out period. For the vacant period, no deemed rent applies (unlike self-occupied property scenarios). You can still claim the full standard deduction and home loan interest as deductions. 

Each let-out property generates a separate 'Income from House Property' that is aggregated in your ITR. You can claim one self-occupied property as nil-income. If you own two properties with both marked as self-occupied, only one will be allowed as nil GAV. The other is treated as deemed let-out at fair market rent and taxed accordingly. 

No, both residential and commercial rental income are treated identically under 'Income from House Property' as per the Income Tax Act. The same deductions (30% standard, municipal tax, home loan interest). and the same TDS obligations (31.2% under Section 195) apply to both property taxes.