NRI Tax on Rental Income in India

Many NRIs choose to rent out residential property in India while they are living abroad. If you are an NRI who wants to rent out their residential flat, but are unsure of income tax aspects, then you have come to the right place. In this article, we will answer your queries regarding NRI tax on rental income in India.

NRI Tax on Rental Income in India
NRI Tax on Rental Income in India

Who is an NRI?

According to the Income Tax Act, a citizen is said to be a resident of India if- 

  • The status of Indian Resident is given to those who have stayed in India for about 182 days during the financial year, or
  • Have stayed for a minimum of one year (365 days) in the last four years and stayed for 60 days in the concerned year.

Anyone not following the above-mentioned condition, will be considered an NRI or a Non Resident Indian.

Do NRIs have to Pay Tax on Rental Income?

Yes, if a Non-Resident Indian (NRI) rents out a property located in India, then he/she is liable to pay tax, applicable under the provisions of the Income Tax Act, on the rental income from that property. The tax is applicable under the provisions of the Income Tax Act, 1961.

NRI Tax on Rental Income in India

In case you earn income by renting out your property in India, you will be required to pay taxes on your rental income to India. The marginal tax income rate applicable to NRIs will be levied on this income. To determine your total income, add your property income to your other sources of income like salary, dividends. This will help you arrive at the figure that will be subject to the applicable tax slab rate. Additionally, you may also be subject to a 4% education cess and surcharge. If your total income (including rental income) is less than Rs 2.5 lakh, you will not be liable to pay taxes. Applicable taxes will be deducted at the source at the rate of 31.2%.

What if Rental Income Exceeds the Exemption Limit?

If NRIs rental income exceeds the exemption limit, then:

  • The tenant of the rented property must deduct a mandatory TDS of 31.2 % from the rent each month. 
  • The tenant must have a TAN i.e. Tax Deduction and Collection Account Number. 
  • They also have to deposit the due TDS amount and submit the TDS certificate to the NRI.
  • If the TDS exceeds the tax liability of the NRI, he/she will receive a tax refund. NRIs will get the tax refund only when they file for your tax return. 
  • NRIs can also apply for a TDS certificate for a deduction of TDS at a reduced rate. This would be with the Jurisdictional Assessing Officer (AO) of the Income Tax Department.
  • Once the NRIs receive the TDS certificate, the tenant has to deduct the TDS at the rates agreed upon and deposit it against the NRI’s PAN.

What If Tax on Rental Income is Not Paid?

If an NRI fails to pay tax on rental income, then the income may attract prosecution under Section 276B of the Income Tax Act, 1961. As per the act, the taxpayer shall be punishable with imprisonment for a term which may extend to six months. He/she shall also be liable to pay a fine which shall be not less than a sum calculated at the rate of 15% p.a. on the amount of such tax from the date on which such tax was deductible to the date on which such tax is actually paid. 

Tax Exemption on Rental Income for NRIs

There are two scenarios where NRIs may be exempt from paying taxes on their rental income up to a certain amount:

  • NRIs who own property can be exempted from paying taxes on rental income if they possess a certificate indicating that their total income from India falls below the exemption limit. This certificate, as per Section 197, permits the taxpayer to pay a lower tax rate on rental income according to the order of the AO.
  • Certain countries have signed the Double Tax Avoidance Agreement with India. If an NRI’s country of residence has signed this agreement, they may not be subject to double taxation on rental income from their property in India. This agreement has been signed by over 80+ countries worldwide, including Canada, Australia, the UK, and the USA, among others.

How do NRIs Collect Rent?

  1. The tenant can transfer the rent money to the Non-Resident Ordinary Account (NRO Account) of the NRI. As per regulations, up to $1 million of NRO funds can be repatriated per financial year.
  2. The tenant can also remit the rent directly to the NRI’s foreign bank account after submitting Form 15CA online to the Income Tax Department. Depending on the situation, Form 15CB might need to be submitted before Form 15CA. 
  3. A chartered accountant must verify payment details, such as the TDS rate, DTAA (if applicable), and other information about the remittance. 
  4. Upon submission of both Form 15CA and 15CB to an authorized bank, the remittance will be authorized.

What is Deemed Rent?

If you are an NRI with multiple residential properties in India, here are some tax implications:

  • One property is considered self-occupied, and the other is deemed rented out. The self-occupied property is not subject to tax. For the property deemed rented out, there will be an estimated rent that will be used to calculate the tax.
  • If you have one residential property in India and you do not rent it out, it will be considered self-occupied, and there will be no tax liability.
  • The rental income will be taxed annually if you own one residential property and rent it out.
  • If you own two properties, and one is rented out, then one property will be considered self-occupied, while the rented-out property will be taxed.
  • If you own two houses, and neither of them is rented out, then one house will be deemed self-occupied, while the other will be deemed as if it were rented out and will be taxed. You can choose which house you want to keep as self-occupied.

Things NRIs Must Remember When Renting Out a Property

Given below are some points that NRIs must keep in mind when renting out a property:

  • To make tax deductions and transactions easier, it is recommended that you open a TAN and NRO account.
  • When renting out your property, it is important to verify your tenant’s identity and ask for their PAN card details.
  • Make sure to create a rent agreement and have it signed by your tenant to avoid any future disputes.
  • Keep track of your annual rental income to ensure that the correct amount of TDS on rent is calculated and deducted.
  • It’s essential to verify that the tenant has deposited the TDS on rent and to obtain a copy of Form 15CA for the concerned financial year.

Contact SBNRI

Due to a complicated tax system, understanding tax laws can be confusing and NRIs may be subject to additional fees or miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts to know more about new TDS/ TCS rules for NRIs. You will also get end-to-end assistance related to NRI tax filing. 

SBNRI will also help you get a lower TDS Certificate. You can also click on the button below to ask any questions. Visit our blog and YouTube Channel for more details.

Ask SBNRI Expert Now


1- What is a Double Tax Avoidance Agreement (DTAA)?

A- The Double Taxation Avoidance Agreement (DTAA) is a treaty that is signed between India and 80+ countries to help NRIs avoid paying taxes twice on the income earned in their country of residence as well as in India.

2- Can NRIs transfer property in India?

A- Yes, NRIs can transfer one’s immovable property in India to a resident Indian. NRIs can transfer one’s immovable property (other than agricultural land or farmhouse) to a citizen of India residing abroad or a PIO card holder resident outside India.

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