For many NRIs investing in Indian real estate, managing the tax on rental income is a crucial aspect of protecting and maximizing their investment returns. Rental income earned from properties in India is fully taxable under Indian law. However, various deductions are available to help NRIs save tax on rental income in India — among the most valuable is the Section 24(b) Home Loan Interest Deduction.
This blog explains how NRIs can use Section 24(b) to lower their taxable rental income, the difference in deductions for self-occupied versus let-out properties, and the documentation and compliance steps needed to claim these benefits — even if you’re residing outside India.
What Is Section 24(b)?
Section 24(b) of the Income Tax Act allows taxpayers to claim deductions on the interest paid on home loans taken for purchasing, constructing, or renovating a residential property. This deduction helps NRIs save tax on rental income, thereby lowering the overall tax on rental income.
For NRIs, understanding and utilizing Section 24(b) effectively can lead to substantial tax savings on their Indian property investments.
Tax on Rental Income: Self-Occupied vs. Let-Out Properties and Section 24(b)
Self-Occupied Property
- Definition: Property occupied by you or your family.
- Interest Deduction Limit: Up to ₹2 lakh per financial year on home loan interest.
- Taxation: Since you don’t receive rental income on a self-occupied property, no rental income is declared, but the interest deduction reduces your taxable income from other sources.
- Under Construction Property: Interest paid during construction can be claimed in five equal installments starting from the year the property is completed.
Let-Out (Rented) Property
- Definition: Property rented out to tenants.
- Interest Deduction Limit: No upper limit on interest deduction.
- Effect on Taxable Rental Income: You can deduct the entire interest paid on your home loan from the rental income, reducing your net taxable rental income.
- Loss Adjustment: If the interest deduction exceeds your rental income, the resulting loss under “Income from House Property” can be adjusted against other heads of income (like salary or business income) up to ₹2 lakh per financial year, further lowering your overall tax liability.
Other Deductions Affecting Tax on Rental Income
NRIs can further reduce their taxable income with these additional deductions related to home loans:
- Principal Repayment Deduction: Up to ₹1.5 lakh annually under Section 80C for principal repayment of the home loan.
- Additional Interest Deduction: An extra ₹50,000 deduction under Section 80EE on the interest component for eligible first-time homebuyers.
Together with Section 24(b), these deductions can significantly help you save tax on rental income.
Also read: Tax on Rental Income in India: 2025 Guide for NRIs
How NRIs Can Claim Section 24(b) and Other Deductions
To benefit fully from Section 24(b) and related deductions:
- File Income Tax Returns (ITR) in India: NRIs must file if total income exceeds ₹2.5 lakh (old tax regime) or ₹3 lakh (new tax regime), even if TDS has been deducted.
- Report Interest Paid: Declare home loan interest under the “Income from House Property” section of your ITR.
- Claim Losses: If interest paid exceeds rental income, claim the loss to offset other income heads.
- Maintain Documentation: Keep all loan statements, interest certificates, and rent receipts handy.
- Use NRO Account: Rental income is typically credited to your NRO account, facilitating compliance.
Tenant Compliance: TDS on Rental Income Paid to NRIs
Tenants paying rent to NRIs must comply with tax rules to ensure proper TDS (Tax Deducted at Source):
- Obtain a Tax Deduction Account Number (TAN).
- Deduct TDS at 31.2% on rent payments.
- Deposit TDS by the 7th of the next month via Challan ITNS281.
- File quarterly TDS returns (Form 26Q).
- Issue Form 16A (TDS certificate) to landlords within 15 days after filing quarterly returns.
- If annual rent exceeds ₹5 lakhs, obtain Form 15CB from a CA before submitting Form 15CA online.
Compliance by tenants helps NRIs get timely credit for TDS deducted on their rental income.
Why NRIs Should Prioritize Tax Planning on Rental Income
- Maximize Tax Savings: Utilizing Section 24(b) and other deductions lowers your taxable rental income and reduces the overall tax paid.
- Improve Investment Returns: Lower tax means higher net income from your property investments.
- Stay Compliant: Filing returns and maintaining documents helps avoid penalties and legal complications.
- Support Long-Term Wealth Creation: Smart tax management strengthens your financial health and wealth accumulation.
Required Documents to Claim Section 24(b) Deductions
| Document | Purpose |
|---|---|
| Home Loan Interest Certificate | Proof of interest paid |
| Loan Sanction Letter | Details of loan terms |
| Occupancy Certificate or Proof | Verifies if the property is self-occupied or let-out |
| Rent Receipts | Proof of rental income for let-out properties |
| Sale Deed / Property Papers | Proof of ownership |
| ITR Acknowledgement | Previous income tax filings |
Final Thoughts
Tax on rental income for NRIs involves several rules and deductions. Section 24(b) home loan interest deduction is a powerful tool to reduce your taxable rental income and increase the profitability of your Indian real estate investments. Combined with other deductions and proper compliance, it ensures you pay only what you legally owe and keep more of your earnings.
At SBNRI, we assist NRIs in navigating Indian tax laws, maximizing deductions like Section 24(b), and maintaining full compliance—whether you are in India or abroad. Reach out to us to simplify your rental income tax management today.
For more information about NRI taxation, visit our blog and YouTube channel.
FAQs
1. Can NRIs claim Section 24(b) on a rented property in India?
Yes, NRIs can claim a deduction on home loan interest for rented properties under Section 24(b), just like resident taxpayers.
2. What is the maximum deduction allowed under Section 24(b) for rented properties?
There is no maximum cap for interest paid on a rented property. The entire interest amount can be claimed as a deduction.
3. Can I claim Section 24(b) if my property is vacant?
If your property is vacant but deemed to be let out (as per income tax rules), you can still claim the deduction.
4. How does Section 24(b) reduce tax on rental income?
It allows you to subtract the interest paid on your home loan from your rental income before tax is calculated, reducing your taxable income.
5. Do I need to live in India to claim this deduction?
No, NRIs earning rental income from property in India can claim Section 24(b) even while residing abroad.
6. Can I claim both Section 80C and Section 24(b) benefits together?
Yes, you can claim Section 80C for principal repayment and Section 24(b) for interest repayment in the same financial year.
7. Is TDS applicable on my rental income as an NRI?
Yes, tenants are required to deduct TDS at 30% before paying rent to an NRI landlord. You can offset this with deductions under Section 24(b).
