How is Rental Income Taxed in India for NRIs? Everything You Need to Know

Understanding Income Tax on Rental Income in India for NRIs

When NRIs own property in India and generate rental income, it becomes taxable under Indian tax laws. The definition of taxable income includes the gross annual value of the property minus allowable deductions like municipal taxes, standard deduction, and interest on home loans for rented properties.

NRIs are classified differently from resident Indians for tax purposes and are subject to specific sections of the Income Tax Act regarding property income. NRIs must file income tax returns annually if they earn rental income, and tax must be withheld (TDS) by the tenant or the property manager at prescribed rates. Understanding this framework is crucial before investing or managing rental properties.

Also Read: How Many Properties Can NRIs Buy in India?

What is the Tax for Rental Income? Components of Rental Income Taxation

The tax on rental income in India typically involves several components:

• Gross Annual Value (GAV): Total rent received or receivable during the year, or the expected rent if the property is vacant.
• Municipal Taxes: Paid by the owner can be deducted to arrive at Net Annual Value (NAV).
• Standard Deduction: 30% of NAV is allowed as a standard deduction to cover maintenance and repairs without proof of expenses.
• Interest on Home Loan: If the property was purchased with a loan, interest paid on the loan for a rental property is deductible, reducing the taxable income.

The taxable income estimation formula is essentially:
Taxable Income = (GAV - Municipal Taxes) - 30% Standard Deduction - Interest on Home Loan (if any)

Also Read: Best Strategies for NRI Real Estate Investments in India

Rental Income Tax Rate for NRIs, Slab and Withholding Provisions

NRIs are subject to tax in India on their rental income tax return at applicable slab rates (generally 30% for income under “Income from House Property”).

Additionally, tenants or property managers deduct tax at source (TDS) at 30% plus applicable cess before paying rent to the NRI owner. This withholding acts as an advance tax, which the NRI can claim against their annual tax liability when filing returns.

To avoid penal interest or deduction at higher rates, NRIs should obtain a PAN card, file timely returns, and claim eligible deductions. Tax treaties (DTAA) between India and other countries often provide relief, preventing double taxation on rental income earned in India.

Filing Rental Income Tax Return for NRIs: Step-by-Step Guide

NRIs must file annual income tax returns reporting rental income from Indian properties. Here is a typical process:

1. Collect Rent Receipts and Documents: Record monthly rent received and municipal tax paid documentation.
2. Calculate Taxable Income: Use the formula considering GAV, deductions, and interest on loans.
3. Download Form 15CA/15CB: For repatriation of rental income abroad, the tax department mandates these forms obtained from authorized Chartered Accountants.
4. Fill the Income Tax Return (ITR-2): This form is for individuals not having business income, applicable for NRI rental income.
5. Claim TDS Credits: Include TDS deducted by tenants and ensure credit for it.
6. Submit before Deadline: Normally by July 31st of the assessment year, electronically on the Income Tax Department portal.
7. Verify Return: Either electronically (EVC) or by physically sending signed documents to the tax department.

Tax on Rental Income for NRI, Deductions, Exemptions & Double Taxation Avoidance

NRIs are entitled to the following deductions under Indian tax laws:

• Municipal Taxes Paid: Fully deductible from gross rent.
• Standard Deduction: Flat 30% on Net Annual Value without the need to prove expenses
• Interest on Home Loan: Interest paid on borrowed capital for property acquisition or renovation is deductible up to ₹2 lakh per annum.
• Double Taxation Avoidance Agreement (DTAA): India’s tax treaties with various countries often allow NRIs to claim tax credit or exemption for taxes paid abroad on the same income, mitigating the effects of double taxation.

Consulting tax professionals to leverage DTAA benefits is advisable for maximizing after-tax rental income globally.

Understanding income tax on rental income in India is essential for NRIs owning property to ensure compliance and optimize profitability. Through transparent knowledge of tax rates, deductions, filing procedures, and international treaty benefits, NRIs can manage their Indian real estate investments smoothly and efficiently. Piramal Realty continues to empower its clients with detailed guidance and expert insights, helping secure rewarding returns in one of the world’s most vibrant real estate markets.

Also Read: Why NRIs Invest in Real Estate Market in Mumbai

Disclaimer - This article is based on the information publicly available for general use as well as reference links mentioned herein. The views expressed above are for informational purposes only based on industry reports and related news stories. Piramal Realty does not guarantee the accuracy, completeness, or reliability of the information and shall not be held responsible for any action taken based on the published information. Piramal Realty expressly disclaims/disowns any liability, which may arise due to any decision taken by any person/s basis the article hereof. Readers should obtain separate advice with respect to any particular information provided here in.