NRI Rental Income From India: Tax and TDS Rules Explained

Why an NRI Landlord's Tenant Withholds So Much More

When property in India is rented out and the landlord is an NRI, the tenant is legally required to deduct TDS at 31.2% of the gross rent — 30% tax plus applicable surcharge and a 4% cess — under Section 393(2) of the Income Tax Act, 2025, the provision that replaced the earlier Section 195 from April 2026. Compare this to roughly 2% TDS when the same tenant rents from a resident landlord, and there's no minimum rent threshold below which the obligation disappears — even a modest monthly rent triggers this higher withholding requirement. The rate difference exists because Indian tax law treats payments to non-residents with a higher default withholding assumption, on the theory that it's harder for the tax department to otherwise ensure eventual collection from someone outside the country.

TDS on the Gross Rent — Not the Same as Your Actual Tax Liability

It's important to separate two different numbers that often get conflated: what the tenant withholds, and what the landlord actually owes. The tenant deducts 31.2% of the gross rent paid, full stop — they don't, and legally can't, factor in the standard deduction, municipal taxes, or other expenses the landlord may be entitled to claim. Those deductions only come into play later, when the NRI landlord computes their actual taxable rental income on their own Indian income tax return. This gap between gross withholding and actual liability is exactly why most NRI landlords end up significantly over-withheld through the year.

The 30% Standard Deduction, and What It Means in Practice

When computing taxable income from house property, an NRI landlord is entitled to a standard deduction of 30% of the net annual value (rent received, minus any municipal taxes actually paid) under the current successor provision to the earlier Section 24 — a flat deduction available regardless of actual maintenance expenses, meant to account for wear, repairs, and collection costs without requiring itemized proof. Combined with municipal taxes paid, actual taxable rental income is often meaningfully lower than the gross rent the 31.2% TDS was calculated against, which means most NRI landlords who file a return correctly are entitled to recover a genuine, sometimes substantial, portion of what was withheld during the year.

Getting the Refund: Filing Is Not Optional If You Want It Back

The only way to recover over-withheld TDS is to file an Indian income tax return declaring the rental income, the actual TDS deducted (which should be reflected in Form 26AS or the Annual Information Statement), and the deductions the landlord is entitled to claim. This return can, and should, be filed even where total Indian income is otherwise below the ordinary filing threshold, because filing is what triggers the refund process — skipping it simply leaves the over-withheld amount with the tax department indefinitely. The refund itself is processed only after the return is filed and assessed, which realistically takes several months, so this is a genuine cash-flow timing issue worth planning around rather than a minor paperwork afterthought.

Avoiding the Over-Withholding Altogether

Rather than over-paying through the year and waiting on a refund, an NRI landlord can proactively apply for a certificate authorizing lower or nil TDS deduction under Section 395 of the Income Tax Act, 2025 (the successor to the earlier Section 197), filed with the jurisdictional Assessing Officer. Once granted, this certificate directs the tenant to withhold at the corrected, lower rate reflecting the landlord's actual likely tax liability going forward, rather than the blanket 31.2% default — meaningfully improving monthly cash flow instead of accepting an interest-free loan to the government until the following year's refund comes through.

What This Means for the Tenant, Too

This isn't purely the landlord's concern — a tenant who fails to deduct TDS correctly, deducts at the wrong resident-landlord rate by mistake, or fails to deposit and report the deduction properly faces their own exposure to interest, penalties, and related compliance consequences, independent of the landlord's own tax position. Because of this, it's worth an NRI landlord proactively confirming their status and the correct withholding rate in writing to a new tenant at the start of the lease — a cooperative, well-informed tenant genuinely protects both sides, while confusion on this point tends to create friction that's entirely avoidable with clear communication upfront.

The Tenant's Compliance Burden: TAN, Not Just PAN

One detail that surprises many tenants is that paying rent to an NRI landlord requires the tenant to obtain a Tax Deduction Account Number (TAN) — a formal registration with the tax department distinct from an ordinary PAN — before they can deposit the deducted TDS or file the required return at all. This is a meaningfully heavier compliance burden than renting from a resident landlord, where TDS only applies above a specific monthly rent threshold and a TAN often isn't required. Once registered, the tenant must file Form 27Q, a quarterly TDS return, for as long as the tenancy continues — even where the NRI landlord is the tenant's only such arrangement — and issue the landlord a Form 16A certificate confirming what was deducted and deposited each quarter, which the landlord in turn needs when filing their own return and claiming credit for the tax already withheld. Because this is genuinely more involved than a typical resident tenancy, it's worth an NRI landlord walking a new tenant through these obligations clearly at the start of the lease, ideally with a reference to an accountant who can help the tenant register and file correctly, rather than leaving the tenant to discover the requirement only after a compliance notice arrives.

Frequently Asked Questions

Related Reading & Services

• NRI Taxation & Income Tax — our full service guide on Indian income tax matters for NRIs.
• TDS & Capital Gains on Property Sale — for the related tax rules when eventually selling the same property.
• Banking & Repatriation of Funds — for moving rental income and other proceeds to the USA.
• More NRI Legal Guides — browse all articles on property, banking, inheritance, and taxation for NRIs in the USA.