Tax on an NRI's Indian Rental Income: The 30% Deduction, Section 24(b) Interest, and the 31.2% TDS Your Tenant Owes

You let a two-bedroom flat in Bengaluru for Rs 50,000 a month while you work in London or Dubai. The rent lands in your NRO account, and the question that should bother you is not how much tax you owe, because that figure is surprisingly small, but how much your tenant is supposed to be carving off the top before it ever reaches you. The honest answer is roughly a third of the gross rent, deducted from the first rupee, against a real tax bill that on a typical flat is closer to a sixth of that. The whole game of NRI rental income is the distance between those two numbers, and who is sitting on your money while you wait to close it.

The 30-second answer: An NRI's Indian rent is taxed under the head Income from house property. Take gross rent, subtract municipal taxes paid to reach net annual value, then a flat 30% standard deduction under Section 24(a), then home-loan interest under Section 24(b) (uncapped for a let-out property, though the loss it creates can be set against other income only up to Rs 2 lakh a year, and under the new regime that inter-head set-off is barred entirely). Your tenant must deduct TDS under Section 195 at 31.2% (30% plus 4% cess, surcharge on top above Rs 50 lakh) on gross rent, from the first rupee, needs a TAN, and files Form 27Q. That over-withholds, so file ITR-2 by July 31, 2026 for AY 2026-27 to claim the refund, or pre-empt it with a Section 197 certificate, and use the DTAA to credit the Indian tax where you live.

This guide is part of our NRI tax-filing series. For the full mechanics of putting the return together, which schedules apply and how to e-verify from abroad, start with the NRI ITR filing guide for AY 2026-27, then come back here for the rental detail.

This guide assumes you already know your residency status and what an NRO account is. What follows is the part that moves money: how the net taxable figure is built and why it is so much smaller than your rent, why your tenant's 31.2% withholding is the real cost even though the tax is mild, how the new regime quietly kills a deduction the old one allows, and the two levers (Section 197 and your treaty) that stop you financing the government for a year. Three worked examples run the arithmetic end to end.

The computation does not care that you are an NRI, but the withholding does

Indian tax law sorts income into five heads, and rent from a building you own sits under Income from house property, currently Sections 22 to 27 of the Income Tax Act, 1961. Worth flagging now, because it lands inside this assessment year's filing window: the new Income Tax Act, 2025 takes effect on April 1, 2026 and renumbers these provisions to Sections 20 to 25. The arithmetic does not change, but the section numbers your CA quotes next year will. For AY 2026-27, the year you are filing for now, the old numbers still govern.

The thing most NRIs get wrong is assuming their non-resident status changes how the rent is computed. It does not. An NRI and a resident build the taxable figure identically. Residency bites in exactly two places: the withholding (your tenant deducts under Section 195, not the gentle resident-landlord provisions) and the reliefs you are denied (no Section 87A rebate, no setting the basic exemption against the income in the way that quietly helps a low-income resident). Everything else is the same five-line build:

1. Gross annual value (GAV), broadly the rent the property fetched or could reasonably fetch.
2. Less municipal taxes actually paid by you, giving the net annual value (NAV).
3. Less the 30% standard deduction under Section 24(a) on the NAV.
4. Less interest on borrowed capital under Section 24(b).
5. The result, positive or, where interest is large, a loss.

The order is not optional, and each line has a trap. The 30% comes off the NAV, not the gross rent, so the municipal-tax line you are tempted to skip actually shrinks every deduction below it. Get the sequence right and the rest is arithmetic.

The 30% is a gift, not a reimbursement, and it kills your itemised claims

The line that surprises people is Section 24(a): a flat 30% of net annual value, given whether you spent nothing on the flat all year or spent three times that. It is not a reimbursement of repairs. The 2025 Act, when it lands, makes the computation base explicit, the NAV after municipal taxes, but the principle is unchanged. This is the most generous line in the whole computation and the one NRIs most often misread, because they assume they can also deduct what they actually spent.

You cannot. The 30% is deemed to cover repairs, painting between tenants, society maintenance, the broker's finding fee, insurance, the plumber, everything except interest. So do not hand your CA a folder of maintenance bills expecting a separate deduction; they are already inside the 30% and claiming them again is simply wrong. The only two deductions that live outside it are municipal taxes (subtracted before it, to reach NAV) and home-loan interest (subtracted after).

There is a quiet asymmetry worth naming here, because it cuts the other way for NRIs who spend heavily on a property. A resident landlord who pours Rs 3 lakh into renovating a flat earning Rs 6 lakh still only gets the 30%, Rs 1.72 lakh on a typical NAV, and so does the NRI. The 30% is a ceiling dressed as a floor. If you are about to gut-renovate before letting, the tax system gives you nothing extra for it on the rental side, which should factor into whether you do it at all.

Section 24(b): the interest is uncapped, and the Rs 2 lakh everyone quotes is the wrong Rs 2 lakh

If you borrowed to buy, build, or repair the property, the interest is deductible under Section 24(b), and for a let-out property there is no cap on the interest itself. You deduct the entire year's interest, even if it runs to five or six lakh against a rent of six.

The famous Rs 2 lakh ceiling is for self-occupied property only, where there is no rent to absorb the interest. People carry that number into the let-out conversation and badly understate what they can claim. For your rented flat, the interest deduction is the full figure.

The Rs 2 lakh that does matter for a let-out property is a different limit entirely, and confusing the two is the single most expensive mistake in this area. When large interest pushes the house-property computation into a loss (interest exceeds rent net of the 30% and municipal taxes), Section 71 lets you set that loss against your other income, salary, NRO interest, capital gains, only up to Rs 2 lakh in a year. Anything beyond Rs 2 lakh is carried forward under Section 71B for up to eight assessment years, but in those later years it can only shelter house-property income, nothing else. For most rental-only NRIs the cap rarely bites, because there is little other India income to set the loss against. It bites hard when you also have a large NRO fixed-deposit interest line or an India-source capital gain in the same year and were counting on the mortgage loss to wipe it out.

The new regime takes the loss away, and that decides which regime you file under

Here is the fact that should drive your regime choice, and it is not the slab rates. Under the new regime (Section 115BAC, the default since AY 2024-25), the inter-head set-off of a house-property loss against other income is gone. Not capped at Rs 2 lakh; gone. You can still report the loss and carry it forward eight years to set against future house-property income, but you cannot use a single rupee of it this year to reduce your salary, your NRO interest, or your capital-gains tax. The old regime keeps the Rs 2 lakh set-off alive; the new regime defers the entire benefit into the future.

The new-regime slabs for FY 2025-26 (AY 2026-27) run 0% up to Rs 4,00,000, 5% to Rs 8,00,000, 10% to Rs 12,00,000, 15% to Rs 16,00,000, 20% to Rs 20,00,000, 25% to Rs 24,00,000, and 30% above. The higher Rs 4,00,000 basic exemption helps everyone. But the Section 87A rebate that makes income up to Rs 12 lakh tax-free is for residents only, so as an NRI you do not get that zero-tax band; your tax starts above Rs 4,00,000 regardless.

The decision splits cleanly along one line: do you have a mortgage-driven loss and other India income to set it against?

Your situation	Old regime	New regime	Which wins
Rental only, no home loan, modest income	Rs 2.5 lakh basic exemption, slab tax	Rs 4 lakh basic exemption, lower slabs	New regime, on the higher exemption alone
Let-out flat with large interest loss, plus other India income (NRO FD, gains)	Loss set off vs other income up to Rs 2 lakh this year	No inter-head set-off; loss only carried forward	Old regime can win, because the loss works now
Let-out flat with interest loss, but no other India income to absorb it	Loss carried forward anyway (nothing to set off)	Loss carried forward anyway	Roughly neutral; new regime's slabs usually edge it
High rent, pushed into surcharge territory	87A unavailable to NRIs in both	87A unavailable to NRIs in both	Compare slab tax directly; new regime usually lower

The general recommendation for a rental-only NRI with no loss to deploy is the new regime, because the higher exemption and softer slabs win and you are giving up a set-off you cannot use. The exception is the NRI carrying a genuine interest-driven loss against meaningful other India income in the same year; for them the old regime can be worth more than the slab difference. Model both in the ITR utility before you commit; the choice is annual.

What a flat actually produces: from Rs 6 lakh of rent to Rs 1 lakh of tax

Put the five lines on the Bengaluru flat. Gross rent of Rs 50,000 a month is a GAV of Rs 6,00,000. You paid Rs 24,000 of municipal tax, so NAV is Rs 5,76,000. The Section 24(a) deduction at 30% is Rs 1,72,800, leaving Rs 4,03,200. You have a home loan running Rs 3,00,000 of interest this year, fully allowed because there is no cap on let-out interest. Income from house property: Rs 1,03,200.

So a flat that grossed Rs 6,00,000 leaves taxable income of Rs 1,03,200, a touch over a sixth of the headline rent. Note the interest here is Rs 3,00,000, well above the Rs 2 lakh figure people wrongly quote as a ceiling, and every rupee of it is allowed. The property still shows a positive figure, so no loss and no set-off question arises.

Now turn one dial and watch the regime choice come alive. Suppose the interest were instead Rs 5,00,000, not Rs 3,00,000, because you bought recently on a large loan. The computation runs to a loss of Rs 96,800 (Rs 4,03,200 minus Rs 5,00,000). If this is your only India income, the regime is irrelevant; there is nothing to set the loss against either way, and it carries forward. But say you also earned Rs 4,00,000 of NRO fixed-deposit interest that year. Under the old regime, you set the Rs 96,800 loss against that interest, taxing only Rs 3,03,200 of it, and the loss saves you roughly Rs 20,000 in tax this year. Under the new regime, the loss cannot touch the NRO interest; you are taxed on the full Rs 4,00,000 now and carry the Rs 96,800 forward to a year you may not have rental income to use it. That single difference, on these numbers, is the whole reason to run both regimes.

The 31.2% your tenant owes, and why it over-withholds by design

Now the part that surprises both sides of the lease. When rent is paid to a non-resident landlord, the tenant must deduct tax at source under Section 195, the catch-all for any sum (other than salary) paid to a non-resident that is chargeable to tax in India. It carries none of the comfortable thresholds residents enjoy, and three features make it bite:

• The rate is 31.2%, that is 30% plus 4% health and education cess. If your total India income for the year crosses Rs 50 lakh, surcharge stacks on top: 10% of the tax between Rs 50 lakh and Rs 1 crore, 15% above Rs 1 crore. On a high rent that lifts the effective deduction past 34% and toward 36%.
• There is no threshold. Deduction starts at the first rupee. The Rs 50,000-a-month floor many tenants have heard of belongs to Section 194-IB, which applies only when the landlord is a resident. Pay rent to an NRI and Section 195 governs, with no floor.
• It is deducted on gross rent, before the 30%, before municipal taxes, before interest. That is precisely why it over-withholds: the base is several times your real taxable income.

For the tenant this is a genuine compliance burden, and most individual tenants have no idea it exists. To deduct correctly the tenant must obtain a TAN (Tax Deduction and Collection Account Number) under Section 203A, because a PAN is not enough to deposit TDS; deposit the tax against your PAN by the monthly due date; file a quarterly return on Form 27Q, the return specific to payments to non-residents; and issue you Form 16A, your evidence for claiming credit.

Because rent to a non-resident is a foreign remittance, the reporting machinery also engages. The tenant or the remitting bank files Form 15CA, an online declaration of the payment and tax. Once the taxable remittance to you crosses Rs 5,00,000 in the financial year, aggregated across payments, not per transaction, a Form 15CB, a chartered accountant's certificate confirming the correct tax and treaty position, is required first. At Rs 50,000 a month you cross that aggregate threshold by October, so for any meaningful let, plan on a Form 15CB being part of the annual paperwork. The same forms govern moving money out of an NRO account; the mechanics are in the NRO repatriation process and tax on NRO interest.

The honest practical reality: most individual tenants deduct nothing, because they do not know they must and do not have a TAN. That does not erase the obligation, and it leaves the tenant exposed to interest and penalty for failure to deduct. What it means for you is covered below; the short version is that the tax is still yours to pay whether or not anyone withholds it.

The refund case: Rs 2.5 lakh of your money, parked with the department for a year

The arithmetic that shows why the withholding, not the tax, is the problem. Take a different property: rent Rs 80,000 a month, gross Rs 9,60,000 for the year, municipal taxes Rs 30,000 paid, no home loan, and this is your only India income. Your tenant is a diligent corporate lessee who deducts correctly under Section 195.

Build your actual taxable income first: GAV Rs 9,60,000, less municipal taxes Rs 30,000, NAV Rs 9,30,000, less the 30% (Rs 2,79,000), income from house property Rs 6,51,000.

Now what the tenant withheld, at 31.2% on the gross Rs 9,60,000 across the year: Rs 2,99,520.

Now your real tax on Rs 6,51,000. As an NRI you get no Section 87A rebate. On the old regime (basic exemption Rs 2,50,000): nil on the first Rs 2,50,000; 5% on the next Rs 2,50,000 is Rs 12,500; 20% on the remaining Rs 1,51,000 is Rs 30,200; tax before cess Rs 42,700; add 4% cess Rs 1,708; total Rs 44,408.

So the tenant deducted Rs 2,99,520, your real bill is Rs 44,408, and your refund is Rs 2,55,112. That is over a fifth of a year's rent sitting with the tax department until you file. You do get it back in full, with interest under Section 244A at 0.5% a month from the start of the assessment year, but that 6% annual rate is below what the money would earn almost anywhere, so the float is a real, if quiet, cost. Run the same Rs 6,51,000 through the new regime and the tax is lower still (5% from Rs 4 lakh to Rs 6.51 lakh, about Rs 12,550 plus cess), making the over-withholding gap even wider. Either way, the refund is the headline, and Section 197 is how you avoid needing one.

Section 197: apply in April, not after the first deduction stings

The lever that stops all of this at source is a lower-deduction certificate under Section 197, applied for on Form 13. It tells your tenant to deduct on a figure close to your actual liability instead of 31.2% of gross. On the Rs 9,60,000 flat above, a certificate could cut the deduction from Rs 2,99,520 to something near the real Rs 44,408, leaving roughly Rs 2.5 lakh in your hands through the year instead of the department's.

Two practical points the brochures skip. First, timing: the certificate is valid only for the financial year in which it is issued and lapses on 31 March, so you apply at the start of the year, in April, for it to cover the rent you are about to receive. Apply in November and you have already over-funded the department for seven months. Second, lead time: approval runs the assessing officer's queue, typically five to six weeks, sometimes longer, which is the other reason to file in April. It is paperwork and it is worth it on any rent above roughly Rs 40,000 a month, where the annual over-withholding runs into lakhs. The mechanics are in TDS for NRIs and how to claim it back and the lower-TDS certificate guide.

Advance tax, and the trap when your tenant deducts nothing

If your estimated India tax for the year, net of TDS, exceeds Rs 10,000, you owe advance tax in four instalments: 15% by June 15, 45% by September 15, 75% by December 15, 100% by March 15, with interest under Sections 234B and 234C at 1% a month on short payment.

For a rental NRI whose tenant deducts at 31.2%, advance tax is usually moot, the withholding already exceeds the bill. It becomes live precisely in the common case where your tenant, an individual, deducts nothing. Then there is no withholding against the rent, the income is fully taxable, and if you wait until filing you owe the tax plus 234B and 234C interest. If that is you, estimate the tax on your net rental income and pay it in instalments through the year. The most expensive version of this mistake is assuming no TDS means no tax; the income is taxable whether or not anyone withheld it.

Filing ITR-2 and getting the refund moving

NRIs file ITR-2, the form for individuals without business income. Rent goes in Schedule HP: enter gross rent and municipal taxes, the 30% is computed for you, and you fill the Section 24(b) interest. The TDS your tenant deducted flows from Form 26AS and the AIS, and you must reconcile both against your Form 16A before filing, because a mismatch between your claimed TDS and Form 26AS is the single most common cause of refund delay.

The return is due July 31, 2026 for AY 2026-27. File early and clean. Refunds broadly process first-come, and an early ITR-2 with TDS reconciled tends to refund within weeks; a late or mismatched one drags for months. Your Indian bank account must be pre-validated on the portal and PAN-linked for the refund to credit.

Where the rent is also taxed abroad, and what you actually keep

Rental income from Indian immovable property is taxed in India first. This is not a quirk; Article 6 of every modern Indian DTAA assigns the primary taxing right over immovable-property income to the country where the property sits. Indian property, Indian tax, first. What happens next depends entirely on where you live, and the difference is large enough that the same flat nets you different amounts in different cities.

If you are in the UAE, there is no personal income tax, so nothing to credit and the Indian slab tax on the net rent is final. You keep the rent less only India's tax.

If you are in the UK, USA, or Canada, all of which tax residents on worldwide income, the same Indian rent is reported again at home, and you claim foreign tax credit for the Indian tax paid. The credit is capped at your home country's tax on that slice of income. The practical consequence is asymmetric: where your home rate is higher than India's effective rate on the rent (often the case, given how the 30% and interest shrink the Indian base), you credit the Indian tax in full and top up the difference at home, so India's low effective tax does not actually save you, it just shifts where the tax lands. Where India's tax happens to be higher, the excess credit may be unusable, leaving you marginally worse off. The US adds its own wrinkle: it allows depreciation on rental property that India's house-property head does not, so your US-reported rental income and your India-reported figure rarely match line for line, which is a reconciliation your US preparer needs to handle deliberately.

To claim the treaty position and any reduced withholding you typically need a Tax Residency Certificate (TRC) from your country of residence and Form 10F; the mechanics are in DTAA mechanics, the TRC and Form 10F and the broader treatment in DTAA relief for NRIs. Keep the Indian ITR-2, Form 16A, and proof of tax paid; your home-country filing will demand them as evidence of the credit.

Edge cases

Your tenant deducts nothing. The norm with individual tenants, not the exception. The obligation and exposure sit with the tenant, but you cannot force compliance, and you cannot treat it as a free pass. Declare the full rent in ITR-2 and pay the tax yourself, through advance tax during the year and self-assessment tax at filing.

Joint ownership. Where the flat is co-owned, say with a spouse, the rent and every deduction (municipal taxes, the 30%, the interest) split in the ownership ratio, and each owner reports their share in their own ITR-2. The TDS should be apportioned too. A common, refund-delaying error is one spouse declaring the whole rent while the TDS sits against the other's PAN.

A second property left vacant. If you own more than one house in India and one is not actually let, the deemed-let-out rules can attribute a notional rent to the extra property. For a genuinely let flat earning real rent this does not arise, but it matters if you are leaving an inherited or investment flat empty.

Rent credited to NRE instead of NRO. Rent is current income arising in India and must go to an NRO account, not NRE, which is for foreign-earned funds. It changes nothing in the tax computation, but routing rent through NRE is a FEMA error. The account mechanics are in NRE, NRO and FCNR accounts.

Selling the flat later. When you eventually sell, a harsher and entirely separate TDS regime applies, often on the full sale value rather than the gain, and the no-indexation rule hits NRIs specifically. That is its own subject, in selling property in India as an NRI and capital gains tax for NRIs.

The honest read

The honest read on NRI rental income is that the tax is mild and the friction is everything. A flat grossing Rs 6,00,000 produces taxable income near Rs 1,00,000 after the municipal-tax line, the 30% under Section 24(a), and the home-loan interest. That is not a burden anyone should restructure their life around. The pain is the 31.2% your tenant is meant to withhold on gross rent, which over-withholds by design and parks a fifth of a year's rent with the department at a 6% consolation rate while you wait.

So commit to this. If your rent is above roughly Rs 40,000 a month and your tenant deducts, apply for a Section 197 certificate in April, before the first deduction, because the alternative is lending the government several lakh interest-free for a year. If your tenant deducts nothing, the common case, pay advance tax and declare the full rent; the income is taxable regardless, and waiting only adds 234B and 234C interest. On the regime choice, default to the new regime if rental is your only India income, and switch to the old regime only when you have a genuine interest-driven loss and other India income to absorb it this year, because that set-off is the one thing the new regime takes away. Whichever regime, file ITR-2 early and clean with the TDS reconciled against Form 26AS, so any refund moves in weeks not months. And if you live in the UK, USA, or Canada, keep the Indian return and Form 16A, because India's low effective tax on rent does not actually reduce your global bill, it only decides which country collects, and the foreign tax credit is what stops you paying twice. The system rewards the organised and quietly taxes the rest in delay.

Related guides

• NRI ITR filing guide for AY 2026-27
• TDS for NRIs and how to claim it back
• The lower-TDS certificate (Form 13, Section 197)
• Tax on NRO interest
• DTAA relief for NRIs
• DTAA mechanics, the TRC and Form 10F
• NRI residency and RNOR rules
• Capital gains tax for NRIs on shares and mutual funds
• Schedule FA foreign-asset reporting
• NRE, NRO and FCNR accounts
• The NRO repatriation process
• Buying property in India as an NRI
• Selling property in India as an NRI
• All taxation guides

This guide explains the law as it stands for FY 2025-26 (AY 2026-27) and is general information, not personal tax advice. The rental computation, the regime choice, TDS at source, and the DTAA position all depend on your full income picture and your country of residence, and the section numbers change when the Income Tax Act, 2025 takes effect on April 1, 2026. The worked examples are illustrative. Before you file, reconcile your TDS against Form 26AS and the AIS, and where the amounts are material or your situation is not straightforward, consult a chartered accountant or a qualified cross-border tax adviser.