Taxation of Rental Income for NRIs in India: Key Updates for 2025

For Non-Resident Indians (NRIs) owning property in India, earning rental income can be a lucrative investment. However, navigating the Indian tax landscape can be complex, especially with periodic updates to tax laws. Understanding the “Income from House Property” rules, TDS implications, and Double Taxation Avoidance Agreements (DTAAs) is crucial to ensure compliance and optimize your net earnings.

As a leading CA in Mumbai and a trusted tax advisor, CA Sweta Makwana & Associates provides comprehensive guidance to NRIs, helping them manage their Indian income streams efficiently and legally. We ensure that you are well-informed about the latest provisions for 2025 to avoid any compliance pitfalls.

Is Rental Income Earned by NRIs in India Taxable?

Absolutely. Any income accruing or arising in India, including rental income from property located in India, is taxable in India for NRIs. This is regardless of where the NRI resides or where the rent is received. The Indian Income Tax Act, 1961, clearly mandates this.

How is Rental Income Calculated for NRIs in India (2025)?

The process of calculating taxable rental income for NRIs is similar to that for resident Indians, with a few crucial distinctions. Here’s a step-by-step breakdown:

Gross Annual Value (GAV): This is the total rent received or receivable for the property in a financial year. If the property is vacant for a portion of the year, the actual rent received is considered.
Less: Municipal Taxes: You can deduct any municipal taxes (like property tax) paid to local authorities during the financial year.
- Result: Net Annual Value (NAV)
Less: Standard Deduction (Section 24(a)): A flat 30% of the Net Annual Value (NAV) is allowed as a standard deduction for repairs and maintenance, irrespective of your actual expenses. This is a significant fixed deduction.
Less: Interest on Home Loan (Section 24(b)): If you have taken a home loan to acquire or construct the property, you can deduct the entire interest paid on that loan.
- Key Update 2025: For let-out properties, there’s generally no upper limit on the interest deduction. However, any “loss from house property” (where deductions exceed rental income) that you can set off against other income in the same year is restricted to ₹2 lakh per financial year. This unabsorbed loss can be carried forward for up to eight subsequent assessment years.
- Important: If you opt for the new tax regime (which is the default for AY 2025-26), the deduction for interest on home loan for a let-out property is generally capped at ₹2 lakh per annum, similar to self-occupied property. However, recent discussions for Budget 2025 indicate a potential increase in this cap for let-out properties under the new regime to ₹3 lakh per annum. It is crucial to confirm the final notified rules for AY 2025-26.

The final amount after these deductions is your taxable rental income, which will be added to your other Indian income (if any) and taxed as per the applicable NRI tax slabs.

Understanding TDS on NRI Rental Income: A Critical Aspect

One of the most important aspects of NRI rental income is Tax Deducted at Source (TDS) under Section 195 of the Income Tax Act.

Mandatory Deduction: Any person (including individuals and HUFs) paying rent to an NRI must mandatorily deduct TDS from the rental payment, regardless of the rent amount. There is no threshold limit for TDS deduction under Section 195 when paying to an NRI.
TDS Rate: The standard TDS rate for rental income paid to an NRI is 30%, plus applicable surcharge and health & education cess (effectively making it 31.2% or higher, depending on the income slab and corresponding surcharge).
Tenant’s Responsibilities:
1. Obtain TAN: The tenant must obtain a Tax Deduction and Collection Account Number (TAN).
2. Deduct & Deposit TDS: Deduct the applicable TDS from each rent payment and deposit it with the government using Challan ITNS 281 by the 7th of the following month.
3. File TDS Returns: File quarterly TDS returns in Form 26Q.
4. Issue Form 16A: Issue a TDS certificate (Form 16A) to the NRI landlord within 15 days of filing the quarterly TDS return.
5. Form 15CA & 15CB: For remittances exceeding ₹5 lakh, the tenant must also obtain Form 15CB (a certificate from a Chartered Accountant) before submitting Form 15CA online. These forms are crucial for outward remittances from India.

Action Point: As an NRI landlord, ensure your tenant is aware of these obligations. If the tenant deducts a lower rate (e.g., 5% meant for resident landlords), you may face the burden of paying the differential tax along with interest and penalties. Clearly disclose your NRI status in the rental agreement.

Can NRIs Reduce the TDS Burden?

Yes, if your actual tax liability in India is expected to be lower than the 30% (or 31.2%) TDS rate, you can apply to the Assessing Officer (AO) for a Lower or Nil TDS Certificate under Section 197 of the Income Tax Act. This application (Form 13) needs to be made online and verified with a Digital Signature Certificate (DSC). Once approved, you can provide this certificate to your tenant, who will then deduct TDS at the reduced rate specified in the certificate.

Double Taxation Avoidance Agreement (DTAA) Benefits

India has DTAAs with over 90 countries. If your country of residence has a DTAA with India, you can often claim relief from double taxation on your Indian rental income.

Mechanism: DTAAs ensure that you do not pay tax on the same income in both India and your country of residence. They typically specify which country has the primary right to tax certain income. For rental income, India (as the source country) usually has the primary right to tax.
Claiming Benefit: You can claim benefits under DTAA by providing your Tax Residency Certificate (TRC) from your country of residence and electronically filing Form 10F (electronically with PAN and TRC details) with the Indian Income Tax Department. You may then claim a Foreign Tax Credit (FTC) in your resident country for the taxes already paid in India, or a reduced TDS rate might be applicable as per the specific DTAA (e.g., India-US DTAA may reduce TDS on rental income to 15%).
Proof: Maintain all documentation, including your TRC, proof of foreign tax paid, Form 10F acknowledgment, and Indian ITR acknowledgments.

Receiving Rental Income: NRO Account is Key

NRO Account Mandatory: As per Foreign Exchange Management Act (FEMA) regulations, rental income earned in India by an NRI must be credited to a Non-Resident Ordinary (NRO) account. Your existing resident savings account must be converted to an NRO account upon acquiring NRI status.
Repatriation: Funds in an NRO account, including rental income, are generally repatriable (transferable outside India) up to USD 1 million per financial year, subject to tax compliance and necessary documentation (Forms 15CA and 15CB).

Filing Your Income Tax Return (ITR) in India (AY 2025-26)

Mandatory Filing: It is mandatory for NRIs to file their Income Tax Return in India if their total taxable income in India exceeds the basic exemption limit (₹2.5 lakh for those below 60 under the old regime, or ₹3 lakh under the new regime, though a rebate under Section 87A can make income up to ₹7 lakh/₹12 lakh tax-free in new/old regime respectively). Even if TDS has been fully deducted, filing is required to claim eligible deductions, refunds, or DTAA benefits.
ITR Form: NRIs with rental income (and no business income) typically use ITR-2 for filing their returns.
Due Date: For Financial Year 2024-25 (Assessment Year 2025-26), the due date for filing ITR for individuals, including NRIs not requiring an audit, has been extended to September 15, 2025.

Common Mistakes NRIs Make

Non-Disclosure of NRI Status: Not informing the tenant about your NRI status can lead to incorrect TDS deductions and future complications.
Ignoring TDS Compliance: Assuming the tenant will handle everything without proper oversight.
Not Claiming DTAA Benefits: Missing out on significant tax relief by not submitting TRC and Form 10F.
Incorrect Bank Account: Receiving rent in an NRE account (unless from another NRI’s NRE account) or a resident account.
Delayed Filing: Postponing ITR filing can lead to penalties and loss of benefits.

Final Words

Managing rental income as an NRI requires a clear understanding of Indian tax laws and proactive compliance. By leveraging available deductions, understanding TDS obligations, and utilizing DTAA provisions, you can ensure your Indian property investments are both profitable and tax-efficient.

For personalized advice on your NRI tax matters, including optimizing your rental income taxation and ensuring seamless compliance for 2025, reach out to CA Sweta Makwana & Associates. As a leading compliance specialist for SMEs, startups & NRIs in Mumbai, we are here to simplify your financial journey.

Explore our Startup Advisory Services which also cater to the specific needs of NRIs investing in India.

For the most accurate and official tax forms and guidelines, please refer to the Income Tax Department e-filing portal.