The gap is widest where the property carries a home loan, because loan interest reduces the computed income while the withholding is applied to the gross rent regardless. It is also the tenant who has to operate it: the deduction is the tenant's statutory obligation, made under the non-resident provisions rather than the resident ones, and a tenant who applies the resident rate creates a shortfall that surfaces later on the landlord's side.
This article covers the computation, why that gap arises, the certificate that closes it, and what filing involves.
Key Takeaways
Rental income from Indian property is taxable for an NRI under "Income from House Property", on the same computation as for a resident
A tenant paying rent to an NRI must deduct tax on the gross rent with no minimum threshold, unlike rent paid to a resident landlord
A 30% standard deduction on net annual value, plus loan interest without cap on a let-out property, reduce the taxable amount — none of which the withholding takes into account
A lower or nil deduction certificate, applied for on Form 13, brings the withholding closer to the actual liability rather than leaving it to a refund
The rebate available to resident taxpayers does not apply to an NRI, so even a modest taxable house-property income can produce a liability
How Rental Income from Indian Property Is Taxed
Rental income from any Indian property owned by an NRI falls under "Income from House Property", and the treatment is the same for residential and commercial property.
The starting point is the Gross Annual Value: the higher of the rent actually received or the expected rent. Expected rent is what the property could reasonably fetch, assessed on municipal valuation and fair market rent, subject to standard rent where rent control applies.
The consequence catches landlords who let below market. Where a property is rented to a relative or friend at a concessional rent, the assessing officer may substitute expected rent for actual rent in computing Gross Annual Value. Letting a property cheaply does not, by itself, reduce the taxable value.
Computing Net Annual Value (NAV) and Taxable Income
From Gross Annual Value the computation runs in three deductions:
Gross Annual Value less municipal taxes actually paid gives Net Annual Value
Net Annual Value less the 30% standard deduction, which applies regardless of what was actually spent on maintenance
The balance less loan interest, which on a let-out property is not capped
On a let-out flat rented at ₹40,000 a month:
| Item | Amount (₹) |
|---|---|
| Gross Annual Value (12 × ₹40,000) | 4,80,000 |
| Less: Municipal taxes paid | 10,000 |
| Net Annual Value | 4,70,000 |
| Less: 30% standard deduction | 1,41,000 |
| Less: Loan interest | 1,50,000 |
| Taxable income from house property | 1,79,000 |
One point that is easy to miss: the rebate available to resident taxpayers does not extend to an NRI. A resident can extinguish tax up to certain income thresholds through that rebate; an NRI landlord cannot, so even a modest taxable house-property figure produces a liability.
Old vs New Tax Regime Considerations
Both regimes allow the 30% standard deduction on a let-out property, and that does not change between them. They diverge on interest and on losses.
Interest on a let-out property remains deductible without cap under both regimes
Interest on a self-occupied property is deductible under the old regime and not under the default regime
A house-property loss cannot be set off against another head of income under the default regime
Which of these bears on a given position depends on whether the property is let out or self-occupied and on the size of the interest outgo. Establishing the liability under each regime is a chartered accountant's work, and it is the comparison that decides which regime is filed under.
TDS on Rent Paid to NRI Landlords
This is where the friction is. Any tenant paying rent to an NRI must deduct tax at the applicable rate plus surcharge and cess. Unlike rent paid to a resident landlord, there is no minimum threshold — deduction is triggered by the payment, not by its size.
What Tenants Must Do
The obligation on the tenant is a compliance obligation, not simply a deduction:
Obtain a TAN before deducting
Deposit the deducted tax with the government monthly
File Form 27Q quarterly, the return specific to payments to non-residents
Issue Form 16A to the landlord as evidence of deduction
The Cash-Flow Gap
The mechanism produces the gap directly. Deduction is applied to the gross rent, while liability is computed on the amount left after municipal taxes, the 30% standard deduction and loan interest. In the worked example above, gross rent of ₹4,80,000 produces a taxable figure of ₹1,79,000 — and withholding on the former is necessarily larger than tax on the latter.
The difference is recoverable, but only by filing a return and waiting for the refund to be processed. That is the recurring complaint from NRI landlords, and it is a timing problem rather than a tax one.
Penalties for Non-Compliance
The exposure here sits with the tenant. A tenant who fails to deduct or to deposit becomes an assessee in default, and the consequences are:
Interest of 1% per month on tax not deducted
Interest of 1.5% per month on tax deducted but not deposited
A penalty for a late TDS statement, running from ₹10,000 to ₹1,00,000
Where the landlord's PAN is not furnished, the deduction rate rises. An inoperative or unshared PAN therefore has a direct cost, and it falls on the landlord's cash flow rather than on the tenant's.
How NRIs Can Legally Reduce TDS or Tax on Rental Income
The gap between what is withheld and what is owed does not have to sit until refund season. Two routes address it, and they operate at different points.
Apply for a Lower or Nil Deduction Certificate
An NRI may apply for a lower or nil deduction certificate using Form 13 on the income tax e-filing portal. The application calls for:
Income details for the preceding three years and projected income for the current year
Tax paid or deducted in prior years
Details of the deductor — here, the tenant — and the expected rent receipts
Supporting documents: return acknowledgements, computation sheets and relevant financial statements
Once granted, the certificate is valid for the period specified in it, and the tenant deducts at the rate the certificate sets rather than the default rate for that period. It operates prospectively, which is why the timing of the application relative to the tenancy matters.
Reduce Liability First, Then Apply
The two steps interact, because the certificate is granted against a computed liability. The deductions available on a let-out property are:
Municipal taxes actually paid on the property
The 30% standard deduction
Loan interest, without cap
A liability computed with all three claimed is lower than one computed without them, and the rate the certificate specifies follows from that computation. The computation itself is a chartered accountant's work.
Use DTAA and TRC to Avoid Double Taxation
Where the country of residence also taxes this rental income, the Double Taxation Avoidance Agreement between that country and India may provide relief. Any relief depends on the provisions of the relevant treaty rather than on the existence of a treaty, and on documentation:
A Tax Residency Certificate from the country of residence
Form 10F, filed electronically on the Indian portal
Two records keep the position clean across all of these routes: the lease agreement as currently in force, and the Form 26AS and Annual Information Statement entries, which are where a withholding mismatch first becomes visible.
ITR Filing and Repatriation of Rental Income
Where Indian income exceeds the basic exemption limit, filing a return is mandatory even if the tenant deducted in full. It is the only route to a refund of excess tax withheld, which for an NRI landlord is the ordinary case rather than the exception.
Late filing carries a fee, graded by total income, in addition to any applicable interest.
Moving Your Rental Income Abroad
Rent is current income, which is the more permissive category for repatriation under the RBI's framework:
Rent credited to an NRE account — NRE balances are freely repatriable
Rent credited to an NRO account — repatriation permitted up to USD 1 million per financial year, subject to conditions and documentation
Which account the rent is credited to therefore determines the repatriation position, and that is a decision taken when the tenancy is set up rather than when the money is needed.
A Note on PAN and Aadhaar
NRIs are generally outside the mandatory PAN-Aadhaar linkage requirement. An inoperative PAN nonetheless triggers a higher deduction rate and delays refunds, and PAN status is visible on the e-filing portal.
Frequently Asked Questions
My tenant deducted tax on the whole rent. Is that right?
Yes. A tenant paying rent to an NRI deducts on the gross rent, at the applicable rate plus surcharge and cess, with no minimum threshold. The deductions that reduce the actual liability are applied when the return is computed, not when the rent is paid.
How much of my rental income is exempt?
None of it specifically — there is no rent-specific exemption. Total income including rent below the basic exemption limit is not taxed, but the rebate that lets a resident extinguish tax up to certain thresholds does not extend to an NRI.
Can I stop the over-deduction rather than claim it back?
That is what a lower or nil deduction certificate does. Applied for on Form 13, it directs the tenant to deduct at a specified lower rate prospectively, and it is granted against a computed liability — so claiming the municipal taxes, the 30% standard deduction and the loan interest comes first.
Does my bank deduct tax again when the rent reaches my NRO account?
No. The deduction is made by the tenant before the rent is credited, and there is no separate deduction at the account level. A bank may monitor recurring credits for its own compliance purposes.
I have not filed a return because tax was already deducted. Does that matter?
Yes, in two ways. Filing is mandatory where Indian income exceeds the basic exemption limit, and it is the only route to a refund of the excess that was withheld — so not filing leaves the over-deducted amount with the department.
What changes under the new Income-tax Act?
Section numbering, form references and the portal have all changed with it, though the substantive treatment of house property income described here continues. The current position is on the Income Tax Department portal.
Where Cambridge Wealth Fits on NRI Rental Income
Cambridge Wealth is an AMFI-registered Mutual Fund & SIF Distributor, ARN-172841, APMI Registration No. APRN-01683. The computation of house property income, the Form 13 application, treaty relief and the filing of returns are a chartered accountant's work, and representation before the tax authorities sits there too.
What it can do sits alongside that. Rental income arriving in an NRE or NRO account is investible income, and where it goes determines its own tax and repatriation position — the same account question that governs the rent itself. Cambridge Wealth supports the investment-side documentation that position depends on, coordinated across the intermediaries involved, and presents scheme information with holding periods and exit terms visible so the tax consequence of a decision is on the table before it is taken.
Every scheme considered for the research universe passes a documented 108-point research framework across 5,000+ Indian investment products, assessed on quantitative metrics and qualitative factors including structure, mandate, underlying holdings, liquidity and exit terms. If you hold property and financial assets in India together, the cross-border overview is here.
Disclosures
Cambridge Wealth is the consumer brand of Baker Street Fintech Private Limited, an AMFI-registered Mutual Fund & SIF Distributor, ARN-172841, APMI Registration No.: APRN-01683. We act in the capacity of an AMFI-registered Mutual Fund & SIF Distributor and provide scheme information only. Cambridge Wealth does not broker, value or transact in physical property. The computation of tax, the filing of returns and representation before the tax authorities are performed by your own chartered accountant.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future results and there is no assurance that a scheme's objective will be achieved.
A Specialised Investment Fund involves a higher degree of risk than a typical mutual fund and requires a minimum investment of ₹10 Lakhs.
Rates, thresholds, deduction percentages, penalty amounts, repatriation limits and treaty provisions referred to here are as notified by the relevant authority and are subject to amendment. A new Income-tax Act applies from April 2026; the primary source linked above carries the current position.
