NRI Rental Income Taxability in India

Rental income earned from property located in India is taxable in India under the head “Income from House Property”, regardless of where the NRI resides or where the rent is received. This means NRIs cannot escape Indian taxation on property rental income, even if they receive rent in a foreign bank account.

Understanding “Income from House Property”

For tax purposes, rental income falls under a separate category called “Income from House Property”. This classification applies regardless of where the NRI is currently residing or which bank account receives the funds. The key principle is simple: if a property is located in India, rental income generated from it is taxable in India, and NRIs cannot escape this obligation even by living abroad.

Step-by-Step Calculation of Taxable Rental Income

To arrive at the amount of rental income subject to tax, NRIs must follow a structured calculation process:

1. Stage 1: Identify the Gross Annual Rental Amount
   Add all rent received during a financial year (April to March). If a property was vacant for part of the year, include rent only for the period it was actively rented. If a tenant paid multiple months at once or made any advance deposits, include these in the calculation based on the period they cover.

2. Stage 2: Subtract Property Levies
   Deduct all municipal taxes, property taxes, or local authority charges paid during the financial year. These are mandatory levies on property owners and reduce the amount available for personal use. This figure is now called the Net Annual Value (NAV).

3. Stage 3: Apply the Standard Maintenance Allowance
   A blanket 30% deduction is permitted on the NAV, meant to cover repairs, maintenance, depreciation, and upkeep of the property. This is a major benefit for NRIs: they do not need to keep bills or receipts for actual maintenance expenses. Whether the property required maintenance or not, the 30% allowance is automatically granted.

4. Stage 4: Deduct Interest on Home Loan
   If the property is mortgaged, subtract the full amount of interest paid during the year. Importantly, unlike self-occupied homes where interest deduction is capped at ₹2 lakhs annually, rental properties allow unlimited home loan interest deduction. Only the interest portion is deductible; the principal repayment is not.

Complete Formula: 

Taxable Rental Income: Gross Rent – Municipal Taxes – (30% of NAV) – Home Loan Interest

Example

Facts:

• An NRI owns a flat in Mumbai, earning ₹6 lakhs annually in rent.
• Municipal property tax paid during the year: ₹60,000.
• A home loan balance exists with ₹1.5 lakhs interest paid in the year.
• The tenant paid one advance payment of ₹2 lakhs for 4 months upfront.

Calculation:

This taxable income of ₹2,28,000 is added to the NRI’s other global income and subjected to income tax according to applicable slab rates.

What is the tax rate applicable on rental income?

After calculating the taxable rental income (after deductions for municipal taxes, 30% maintenance allowance, and home loan interest), NRIs are taxed according to standard income tax slab rates. These slabs are the same as those applicable to resident individuals.

Old Income Tax Regime Slabs (A.Y. 2025–26)

The old regime allows various deductions and exemptions, which is why most NRIs find it beneficial for rental income situations.

New Income Tax Regime Slabs (A.Y. 2025–26)

Surcharge on Income Tax (A.Y. 2025–26)

A surcharge is an additional tax imposed on the income tax itself, based on the total income level. For NRIs, surcharge rates are applied as follows:

Health and Education Cess

An additional 4% cess is levied on the total income tax (including surcharge). This cess was introduced to fund health and education infrastructure in the country

Understanding TDS on Rental Payments

One of the most significant differences between NRI and resident landlords is the mandatory TDS deduction.

TDS Rate:

Tenants must deduct 31.2% TDS (30% basic tax plus 4% health and education cess) on the entire gross rent, regardless of the amount. This applies from ₹1 of rent onwards, unlike resident landlords, where TDS applies only if monthly rent exceeds ₹50,000.

Tenant’s Compliance Obligations:

• Obtain a Tax Deduction Account Number (TAN).
• Deduct TDS every month before paying rent.
• File Form 15CA (online declaration of remittance) for each rent payment.
• If annual rent exceeds ₹5 lakhs, obtain Form 15CB from a chartered accountant before submitting Form 15CA.
• Deposit the TDS with the government by the 7th of the following month.
• Provide the NRI landlord with Form 16A (TDS certificate) quarterly.

Important Note: TDS is deducted on the gross rent amount, not just the taxable income after deductions. This often results in excess TDS that can be claimed as a refund when filing the income tax return.

How Lower Deduction Certificate (LDC) Reduces TDS on Rental Income

The high mandatory TDS rate of 31.2% creates significant cash flow challenges for NRI landlords, as most end up overpaying tax initially. To address this, NRIs can apply for a Lower Deduction Certificate (LDC) under Section 195 of the Income Tax Act, which allows tenants to deduct TDS at a reduced rate based on the NRI’s actual expected tax liability.

Income Tax Return Filing Obligation

NRIs must file an income tax return if their total income (including rental income) exceeds ₹2.5 lakhs in the financial year. Filing is necessary even if all TDS has been deducted, because:

• It reconciles TDS deducted by the tenant with actual tax liability.
• It claims deductions and exemptions available to the NRI.
• It requests refunds of excess TDS.
• It establishes compliance and creates a paper trail for regulatory purposes.​

Form ITR-2 is typically used by NRIs earning rental income. The return must be filed by July 31st of the following financial year

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