A Large No. of NRI’s settled abroad now own property in India and many of them have even given such properties on Rent. In this article, we would be focusing on the levy of Income Tax on Rent received by NRI’s in India by giving such property on Rent.

Computation of Income Tax on Rent received by NRI’s

Income Tax on Rent received by NRI’s is taxable under head House Property and is levied in the same manner as Resident Indian. Out of the Total Rent received by the NRI, Municipal taxes are first allowed to be reduced. After that, from the balance amount – 30% is allowed as standard deduction and Deduction for Interest paid on Home Loan is allowed. The manner of computation of income tax on rent received by NRI is explained below:-

 Gross Annual Valuexxx
(Less)Municipal Taxes paid(xxx)
 Net Annual Valuexxx
(Less)Deductions under Section 24 
    Standard Deduction @ 30%(xxx)
    Interest on Home Loan(xxx)
 Income from House Propertyxxx

The net figure computed after allowing for above deductions would be liable to income tax as per the income tax slabs of the NRI receiving the rent.

The total income earned by the NRI from all sources (incl Rent) and the Tax paid thereon (incl. TDS & Advance Tax & Self Assessment Tax) is required to be mentioned in the income tax return which is required to be filed annually.

Income Tax on Rent received in the country of Residence of NRI

If you have a property located in India, the rent received by the NRI from such property would be taxable in India. However, it may also be taxable in the country of your residence.

Whether it is taxable in your country of residence depends on tax laws of the country in which you are residing. If that country has double tax avoidance agreement (DTAA) with India, tax in such cases won’t be levied in your country of residence. Eg: USA has a double tax avoidance agreement with India and therefore the rent earned by NRI from property located in India is not taxable in the US.

The list of countries with which India has double tax avoidance agreements is given in this link. For countries not specified in the above list, income tax on rent received would be liable to be paid in India as well as the country of residence.

However, if you are staying in places like Dubai, the Rent received would only be taxed in India and not in Dubai as there is no tax on the income of an individual in Dubai.

TDS on Rent paid to NRI under Sec 195

In case the person receiving the rent is a resident Indian, TDS on Rent @ 10% is required to be deducted by the person paying the rent. However, in case the person receiving the rent is a non-resident Indian (NRI), TDS in such cases would be deducted at the much higher rate under Section 195. The rate of TDS would be 21% after considering the benefit of Standard Deduction. On top of this 21%, Cess would also be applicable and the effective rate of tax will become 21.84%.

However, the NRI may make an application to the income tax officer to issue a certificate for lower deduction of TDS. If, the income tax officer issues such certificate, then TDS on Rent paid to NRI would be deducted at the rates specified in the Certificate.

This TDS is applicable irrespective of whether the house is leased to a company or an individual or any other category of tenant. Everybody is required to deduct this TDS. 

There is a common misconception that Salaried people are not required to deduct this TDS but this is incorrect. The laws for resident landlord and non-resident landlord are different and any person making any payment is required to deduct TDS while making payment to NRI Landlord. This is applicable irrespective of the amount paid.

Other Provisions for Rent received by NRI’s

  1. If the interest on home loan is more than the rent received, there would be loss arising under head House Property which can be set-off with incomes under other heads. If the loss cannot be set-off with incomes under other heads, it can be carried forward for a maximum of 8 years and set-off against income arising in future years.
  2. The rent proceeds will have to be credited to the NRO Account of the NRI. It cannot be credited to the NRE account, unless the person crediting the account is also an NRI and is getting it debited from his NRE account.
  3. No RBI permission is required by the NRI at the time of giving any residential or commercial property on Rent.
  4. NRI’s should also file ITR at the end of the year and if any excess TDS has been deducted, they should claim a refund of the same.
  5. No GST is applicable on rent received from Residential Property. However, if the Rent received from a Commercial Property is more than Rs. 20 Lakhs p.a, then GST @ 18% would also be levied on such rent.

NRI’s can invest in various tax saving options so as to reduce their tax burden. Such tax saving options payment for Health Insurance Premium, Medical Insurance for treatment of disabled dependents, Medical Insurance for specified ailments, Repayment of Interest on Education Loan, making Donations under Section 80G etc.