Income Tax for NRIs in India: How Rental Income Is Taxed

Rental income from property in India is taxed in India, no matter where the owner lives. The tenant deducts tax before the rent reaches you. You file a return, claim your deductions, and settle the difference. That is the whole system in three sentences. This guide walks through each step for financial year 2026-27.

India taxes rent at the source

Income from a house in India is India-source income. Your tax residence does not change that. If you live in Singapore or Dubai, the rent from your Powai flat or your Whitefield apartment is taxed in India first. Your country of residence comes second, through treaty credit. More on that below.

The income falls under the head "income from house property". The starting point is the annual value: the rent the property fetches, or the rent it could fetch if that figure is higher. From the annual value, the law allows three deductions. Municipal taxes you paid. A flat 30% standard deduction. Home loan interest.

Your tenant must deduct TDS under Section 195

This is the step most owners miss and almost every tenant misses. When a tenant pays rent to a resident landlord, TDS falls under Section 194-IB: a low rate, and a monthly rent threshold below which nothing applies. When the landlord is a non-resident, none of that applies. Section 195 does.

Under Section 195, the tenant must deduct tax at 30%, plus surcharge where it applies, plus 4% health and education cess. For most owners that works out to 31.2% of the rent. There is no threshold. The duty starts from the first rupee.

The tenant's compliance load is real. The tenant must obtain a TAN, deposit the tax through challan ITNS 281, file Form 27Q each quarter, and issue Form 16A to you. If the tenant fails to deduct, the interest and penalty land on the tenant, not on you. That does not help you in practice. A tenant facing a tax notice becomes a hostile tenant.

Two practical rules. First, tell every prospective tenant about Section 195 in writing before the agreement is signed. Second, if 31.2% exceeds your true liability, and after the 30% standard deduction it almost always does, apply for a lower deduction certificate under Section 197. You file Form 13 with the assessing officer. The certificate states a lower rate, and your tenant deducts at that rate instead.

The 30% standard deduction survived the new Act

Under the Income-tax Act, 1961, Section 24(a) gave a flat 30% deduction on the net annual value. No bills, no proof of repairs. It covered maintenance and repairs whether you spent the money or not.

The Income Tax Act, 2025 replaced the 1961 Act from April 1, 2026. The deduction survived intact but moved house. It now sits in Section 22(1)(a): 30% of the annual value as determined under Section 21, computed after deducting municipal taxes. Same 30%, new section number. If your CA's working papers still cite Section 24(a), the numbers are fine; the citation needs updating for FY 2026-27 onward.

Municipal taxes: deductible if you paid them

Property tax paid to the municipal body is deductible from the annual value, on two conditions. You, the owner, paid it. And you paid it during the year you are claiming it for. Tax billed but unpaid gives you nothing. Pay it from your NRO account and keep the receipt. Our guide on society dues and property tax for remote owners covers the city portals.

Home loan interest

Interest on a loan taken to buy, build, or repair a let-out property remains deductible. There is a catch under the default new tax regime: a loss under the house property head cannot be set off against salary or other income. So if your interest outgo exceeds your net rent, the excess can get stranded. Whether the old regime, with its set-off and carry-forward rules, leaves you better off is a calculation, not a guess. Have a CA run both regimes on your numbers before you file.

Which ITR form: ITR-2 for most NRI landlords

Non-residents cannot file ITR-1. That form is reserved for residents. For assessment year 2026-27:

The standard due date for non-audit cases is July 31, 2026. File even in a year when TDS covered your full liability. Excess TDS comes back as a refund through a return and through nothing else. Skip the return and the money stays with the department.

DTAA: claim the India tax back home

India has the first right to tax rent from Indian property. Your country of residence may tax it again, and the tax treaty between the two countries decides what credit you get. A UAE resident has no personal income tax to offset, so the India tax is the final cost. A Singapore resident is in most cases not taxed on foreign rental income at all. Either way, keep your Form 16A and your Indian tax return: they are the evidence for any treaty claim. Get a Tax Residency Certificate from your country of residence if you claim treaty benefits in India. Our guide for owners in Singapore and Dubai goes deeper.

Where this goes wrong

This category runs on distance, and distance hides problems for years.

None of this is exotic. It is the default outcome when nobody on the ground owns the paper trail.

FAQ

Is rental income from India taxable for an NRI? Yes. Rent from property situated in India is taxable in India regardless of where you live. Your country of residence may give credit under a tax treaty.

What rate of TDS applies on rent paid to an NRI? 30% plus cess under Section 195, which works out to 31.2% for most owners, higher where surcharge applies. There is no minimum threshold.

Which ITR form should an NRI use for rental income? ITR-2 for assessment year 2026-27. ITR-3 if you also have business or professional income in India. ITR-1 is not available to non-residents.

Can an NRI claim the 30% standard deduction? Yes. The deduction is available to residents and non-residents alike. From FY 2026-27 it sits in Section 22(1)(a) of the Income Tax Act, 2025, in place of the old Section 24(a).

What if my tenant refuses to deduct TDS? The legal default and the penalties sit with the tenant. Your duty is unchanged: report the full rent in your return and pay any balance tax. Put the Section 195 obligation in the rent agreement so there is no dispute later.

Does an NRI get the basic exemption limit on rental income? Yes, the slab exemption applies to non-residents. The Section 87A rebate does not: that rebate is for residents.

Get the rent, the TDS trail, and the receipts handled

66 MG Road manages tenants for NRI owners in Mumbai, Pune, Bangalore, Hyderabad, Chennai, and Gurgaon: rent collection into your NRO account, TDS coordination with the tenant, and a file of receipts your CA can use without chasing anyone. See tenant and rental management.

Saurabh Garg, founder, 66 MG Road

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