My flat in Kochi sat empty for three months after I moved to California.
My mom finally said, “Why not rent it out? At least it will be maintained.”
Great idea. Except nobody told me about TDS. Or that I would need to file ITR in India. Or that the tenant was supposed to deduct 30% before paying me.
I found out when my CA called. “Mani, you have a tax notice.”
That was 2012. Since then, I have helped hundreds of NRIs in our community navigate rental income taxation. The rules are not complicated. But the mistakes are expensive.
If you own property in India and rent it out while living in the USA, this guide is for you. I will show you exactly how rental income is taxed. With real calculations. Real examples. And the stuff nobody tells you until it is too late.
Already know the basics of NRI taxation? Check out our US NRI tax filing guide for the complete picture. And if you want to understand how India and USA coordinate taxes, read our DTAA explainer.
How India Taxes NRI Rental Income
Here is the basic rule. If you own property in India, rental income from that property is taxable in India. Does not matter where you live. Does not matter if you are NRI or Resident.
The property is in India. The income is Indian source. India gets to tax it.
| Aspect | NRI Treatment | Resident Treatment |
|---|---|---|
| Tax on rental income | Yes, taxable | Yes, taxable |
| TDS by tenant | 30% mandatory | Not required (usually) |
| Tax slab rates | Same as Residents | Same as NRIs |
| Standard deduction | 30% of annual value | 30% of annual value |
| ITR filing required | Yes, if income exceeds basic exemption | Yes, if income exceeds basic exemption |
The difference is in how the tax is collected. For NRIs, tax is collected at source. Your tenant deducts it before paying you.
The 30% TDS Rule for NRIs
This catches almost every NRI off guard.
When a tenant pays rent to an NRI landlord, they must deduct TDS at 30%. Not 10%. Not 5%. A full 30%.
Plus surcharge and cess. So effectively around 31.2%.
Your tenant pays Rs 50,000 monthly rent. You receive Rs 34,400. The rest goes to the government as advance tax.
Here is the math:
| Component | Amount |
|---|---|
| Monthly rent | Rs 50,000 |
| TDS at 30% | Rs 15,000 |
| Surcharge (if applicable) | Varies |
| Health and Education Cess (4%) | Rs 600 |
| Total deduction | Rs 15,600 |
| Amount you receive | Rs 34,400 |
Many tenants do not know this rule. They pay full rent. Then you both have a problem. The tenant faces penalties for non deduction. You might face scrutiny for receiving full payment.
Educate your tenant. Or better yet, have a property manager handle this.
Calculating Taxable Rental Income
India does not tax gross rent. It taxes Net Annual Value after deductions.
Here is how to calculate:
Step 1: Determine Gross Annual Value (GAV)
This is the higher of actual rent received or fair rental value. If your flat could rent for Rs 40,000 but you charge your cousin Rs 25,000, India taxes based on Rs 40,000.
For most NRIs renting at market rates, GAV equals actual rent received.
Step 2: Deduct Municipal Taxes
Property tax paid to the municipal corporation is deductible. Only if you (the owner) paid it. Not if the tenant paid.
GAV minus municipal taxes equals Net Annual Value (NAV).
Step 3: Apply 30% Standard Deduction
India allows a flat 30% deduction from NAV. This covers repairs, maintenance, insurance, and other expenses. You do not need receipts. It is automatic.
Step 4: Deduct Home Loan Interest (if applicable)
If you have a home loan on the property, interest paid is deductible. No upper limit for rented property.
The result is your taxable rental income.
Real Example: Calculating NRI Rental Tax
Let me walk through an actual calculation. This is based on a community member’s situation from 2023.
The facts:
Priya owns a 2BHK in Hyderabad. She lives in San Jose. The flat is rented at Rs 35,000 per month. She has a home loan with Rs 1,80,000 annual interest. Property tax is Rs 12,000 per year.
The calculation:
| Item | Amount (Rs) |
|---|---|
| Gross Annual Rent | 4,20,000 |
| Less: Municipal Tax | 12,000 |
| Net Annual Value | 4,08,000 |
| Less: Standard Deduction (30%) | 1,22,400 |
| Less: Home Loan Interest | 1,80,000 |
| Taxable Rental Income | 1,05,600 |
Priya’s taxable rental income is Rs 1,05,600. Not Rs 4,20,000.
Now let us calculate her tax liability.
If rental income is her only Indian income:
| Income Slab | Tax Rate | Tax Amount |
|---|---|---|
| Up to Rs 3,00,000 | Nil | 0 |
| Rs 1,05,600 (within first slab) | 0% | 0 |
Wait. Her taxable income is below the basic exemption limit. She owes zero tax.
But TDS was deducted at 30%. That is Rs 1,26,000 over the year (30% of Rs 4,20,000).
Priya can claim this entire amount as refund when she files ITR. This is why filing returns matters even when you think you owe nothing.
Another Example: Higher Rental Income
Rahul owns a premium apartment in Bangalore. Monthly rent is Rs 1,00,000. No home loan. Property tax is Rs 24,000 annually.
| Item | Amount (Rs) |
|---|---|
| Gross Annual Rent | 12,00,000 |
| Less: Municipal Tax | 24,000 |
| Net Annual Value | 11,76,000 |
| Less: Standard Deduction (30%) | 3,52,800 |
| Taxable Rental Income | 8,23,200 |
Rahul’s tax under the new tax regime (FY 2024-25):
| Income Slab | Tax Rate | Tax on Slab |
|---|---|---|
| 0 to 3,00,000 | Nil | 0 |
| 3,00,001 to 7,00,000 | 5% | 20,000 |
| 7,00,001 to 8,23,200 | 10% | 12,320 |
| Total Tax | 32,320 | |
| Add: Cess (4%) | 1,293 | |
| Total Liability | 33,613 |
TDS deducted during the year: Rs 3,60,000 (30% of Rs 12,00,000)
Rahul paid Rs 3,60,000 in TDS but owes only Rs 33,613. He gets Rs 3,26,387 as refund.
See why filing ITR is essential?
For more on ITR filing, check our ITR guide for NRIs.
Old Tax Regime vs New Tax Regime
You have a choice. The old regime allows more deductions. The new regime has lower rates but fewer deductions.
| Feature | Old Regime | New Regime |
|---|---|---|
| Basic exemption | Rs 2,50,000 | Rs 3,00,000 |
| Standard deduction on rental | 30% allowed | 30% allowed |
| Home loan interest | Fully deductible | Fully deductible |
| Section 80C deductions | Available | Not available |
| Tax rates | Higher | Lower |
For rental income specifically, both regimes allow the 30% standard deduction and home loan interest. The difference comes from other deductions you might claim.
If rental income is your only Indian income, the new regime usually works out better due to higher basic exemption and lower rates.
Run the numbers both ways. Or ask your CA to calculate.
The TDS Problem: Lower Deduction Certificate
30% TDS is aggressive. Most NRIs do not owe 30% tax on rental income.
Solution? Apply for a Lower Deduction Certificate under Section 197.
This certificate tells your tenant to deduct TDS at a lower rate. Maybe 10%. Maybe 5%. Maybe nil if your total income is below exemption limit.
How to get it:
- File Form 13 online through TRACES
- Provide estimated income details
- Wait for certificate (usually 30 days)
- Share certificate with tenant
The certificate is valid for one financial year. Apply fresh each year.
This saves you from blocking large amounts as TDS refund. That money stays in your pocket instead of with the government for 6 to 12 months.
US Tax Implications: Do Not Forget Uncle Sam
Here is what many NRIs miss. India taxes your rental income. But so does the USA.
If you are a US citizen or Green Card holder, you must report Indian rental income on your US return. The IRS wants to know about every rupee.
The good news? You do not pay double tax. The DTAA between India and USA ensures you can claim Foreign Tax Credit for Indian taxes paid.
Quick summary:
| Country | Taxes Rental Income? | How to Avoid Double Tax |
|---|---|---|
| India | Yes, at source | Pay first, get TDS certificate |
| USA | Yes, worldwide income | Claim Foreign Tax Credit on Form 1116 |
Report the rental income on Schedule E of your US return. Convert rupees to dollars. Claim credit for Indian taxes paid.
Our detailed guide on reporting Indian income to IRS walks through the exact process.
Common Mistakes NRIs Make
I have seen these errors countless times in our community calls.
Mistake 1: Tenant not deducting TDS
Your tenant must deduct TDS. If they do not, both of you face consequences. You might get a tax notice. They face penalties for non compliance.
Fix: Give your tenant a written note about TDS requirements. Better yet, hire a property manager who handles this automatically.
Mistake 2: Not filing ITR because TDS was deducted
TDS is not final tax. It is advance tax. You still file ITR to claim refund or report correct income.
Fix: File ITR every year you have Indian income. Even if refund is zero.
Mistake 3: Claiming actual expenses instead of standard deduction
Some NRIs try to claim actual repair costs, painting expenses, brokerage, etc. India does not allow this. You get 30% standard deduction. That is it.
Fix: Use the 30% standard deduction. Do not complicate your return with actual expenses.
Mistake 4: Forgetting to report in the US
Indian rental income is taxable in the USA too. Not reporting is tax evasion.
Fix: Report on Schedule E. Claim Foreign Tax Credit. Stay compliant in both countries.
Mistake 5: Not having TAN for property manager
If you use a property manager and they collect rent, they need their own TAN to deduct TDS. Many small managers do not have this.
Fix: Verify your property manager has TAN. Or have rent paid directly to you.
What If You Have Multiple Properties?
Each property is calculated separately. Then combined.
Say you own:
- Flat A in Mumbai renting at Rs 60,000/month
- Flat B in Pune renting at Rs 30,000/month
Calculate Net Annual Value for each. Apply 30% standard deduction to each. Add them together for total taxable rental income.
If you have home loans on both properties, interest on both is deductible. No combined limit for rented properties.
| Property | Annual Rent | Municipal Tax | NAV | Standard Deduction | Loan Interest | Taxable Income |
|---|---|---|---|---|---|---|
| Flat A | 7,20,000 | 18,000 | 7,02,000 | 2,10,600 | 2,40,000 | 2,51,400 |
| Flat B | 3,60,000 | 10,000 | 3,50,000 | 1,05,000 | 0 | 2,45,000 |
| Total | 4,96,400 |
Your combined taxable rental income is Rs 4,96,400.
Property Left Vacant: Deemed Rental Income
What if your flat is empty? No tenant. No rent.
If you own more than one property in India, income tax rules get interesting. One property can be treated as self occupied (zero taxable value). Additional properties are deemed to be let out.
For deemed let out property, you pay tax on notional rent. What the property could have earned. Even though you earned nothing.
This applies to Residents and NRIs alike.
| Property Count | Tax Treatment |
|---|---|
| One property (self occupied) | No deemed rent |
| Two or more properties | Choose one as self occupied, others deemed let out |
| All properties rented | Tax on actual rent |
If you have multiple properties and some are vacant, consult a CA. The deemed rental income calculation requires fair rent estimation.
Selling Rental Property: Capital Gains
Not about ongoing rental tax. But worth mentioning.
When you sell Indian property, you face capital gains tax. The treatment differs based on how long you owned it.
| Holding Period | Classification | Tax Rate |
|---|---|---|
| Less than 2 years | Short term | Your slab rate |
| More than 2 years | Long term | 12.5% (from July 2024) |
The July 2024 budget changed long term capital gains tax on property from 20% with indexation to 12.5% without indexation. Run numbers both ways for properties bought before July 2024.
For more on property transactions, see our guide on NRI property ownership.
Documents You Need
Keep these organized. Your CA will thank you.
From India:
- Rent agreement (registered)
- Form 16A from tenant (TDS certificate)
- Property tax receipts
- Home loan interest certificate (if applicable)
- Bank statements showing rent credits
- PAN card copy
For US filing:
- All above documents
- Exchange rate records
- Prior year Form 1116 (for carryforward credits)
- Schedule E worksheets
I maintain a Google Drive folder for each property. Every document scanned and dated. When tax season arrives, everything is ready.
Hiring a Property Manager: Worth It?
After my tax notice incident in 2012, I hired a property manager. Best decision I made.
They handle:
- Tenant screening
- Rent collection
- TDS deduction and deposit
- Maintenance coordination
- Legal compliance
Cost? Usually 5% to 8% of monthly rent.
For a Rs 40,000 rent, that is Rs 2,000 to Rs 3,200 per month. Compare that to flying back to India to handle a tenant dispute. Or paying penalties for TDS non compliance.
Our community has recommendations for reliable property managers in major cities. Ask in the WhatsApp group.
Quick Checklist for NRI Landlords
Before this tax season:
- Verify tenant is deducting TDS correctly
- Collect Form 16A from tenant quarterly
- Calculate your estimated tax liability
- Consider Lower Deduction Certificate if TDS exceeds liability
- Keep property tax and loan interest records
- File ITR by July 31 (or extended deadline)
- Report same income on US return
- Claim Foreign Tax Credit on Form 1116
- Keep all records for seven years
Frequently Asked Questions
Q: My tenant refuses to deduct TDS. What do I do?
Legally, TDS deduction is mandatory. If tenant refuses, you have two options. One, find a new tenant who understands compliance. Two, adjust rent to account for TDS and file ITR yourself to regularize. Option one is better.
Q: Can I claim repair expenses separately?
No. The 30% standard deduction covers all expenses including repairs, maintenance, insurance, depreciation. You cannot claim actual expenses on top of this.
Q: What if I earn below taxable limit? Do I still file ITR?
If TDS was deducted, yes. You need to file ITR to claim refund. Also, filing ITR creates a paper trail useful for loans, visa applications, and property transactions.
Q: How do I convert rental income to dollars for US return?
Use the IRS yearly average exchange rate. For 2024, use the rate published by IRS for that year. Apply this rate to your annual rental income.
Q: Can I offset Indian rental loss against US income?
Generally no. Passive foreign income cannot offset US earned income. Rental losses stay within the passive income category. Consult your CPA for specifics.
Q: What if my property is jointly owned with spouse?
Report income based on ownership percentage. If 50-50 ownership, each reports 50% of rental income on their respective returns. Both in India and USA.
The Bottom Line
Rental income taxation for US NRIs is not complicated once you understand the framework.
India taxes you at source through TDS. File ITR to claim refund or report correct income. Report the same income to IRS and claim Foreign Tax Credit.
Here is what matters:
- TDS on NRI rental is 30% (get Lower Deduction Certificate if possible)
- Standard deduction is 30% plus home loan interest
- File ITR in India to claim excess TDS refund
- Report to IRS on Schedule E
- Claim Foreign Tax Credit to avoid double taxation
- Keep organized records
- Consider a property manager for compliance
That tax notice I received in 2012? It got sorted. But it taught me that rental income compliance is not optional. It is essential.
If you are managing Indian property from the USA and want to connect with others doing the same, join our WhatsApp community at https://backtoindia.com/groups. Over 20,000 NRIs helping each other with real, lived experience. It is free and volunteer run.
Got a specific question about your rental situation? Drop it in the group. Someone has definitely faced your exact issue before.
Disclaimer: This article is for informational purposes only. Tax laws change frequently. Always consult qualified tax professionals in both India and the USA for advice specific to your situation.
Sources:
- Income Tax Department, India – Section 195 (TDS on payments to NRIs): https://www.incometax.gov.in
- Income Tax Act Section 24 (Deductions from rental income): https://www.incometax.gov.in
- CBDT Circular on TDS Rates for NRIs: https://www.incometax.gov.in
- IRS Schedule E Instructions: https://www.irs.gov/instructions/i1040se
- IRS Form 1116 (Foreign Tax Credit): https://www.irs.gov/forms-pubs/about-form-1116
- New Tax Regime Slabs FY 2024-25: https://www.incometax.gov.in
- Section 197 Lower Deduction Certificate: https://www.tdscpc.gov.in
Leave a Reply