NRI Rental Income: What Your Tenant Must Deduct

Rent paid to an NRI landlord does not use the familiar resident-landlord withholding rule. The tenant must identify the current non-resident entry under Section 393, calculate the applicable rate and surcharge or cess, and use the correct reporting route.

Here is the problem: most tenants have no idea they need to do this. Most NRI landlords have no idea their tenants are supposed to do this. The rent gets paid in full, nobody deducts anything, and years later, the Income Tax Department sends a notice. The tenant gets hit with interest and penalties. The NRI landlord’s tax records show no TDS credit. Everyone scrambles.

This guide covers everything both sides need to know: who deducts, how much, which forms, and how NRIs can legally reduce the deduction.

Tax rates, forms and thresholds can change. Verify the current position on the Income Tax Department portal and obtain transaction-specific advice before acting.

Why NRI Rent Gets a Different TDS Rate

The gap exists because two different sections of the Income Tax Act apply to two different situations.

When a tenant pays rent to a resident landlord, Section 194-I or 194-IB governs TDS. Section 194-I applies to businesses and professionals, with TDS at 2% for plant and machinery or 10% for land and buildings. Section 194-IB applies to individual tenants paying more than Rs 50,000 per month, with TDS at a flat 2% (reduced from 5% by the Finance (No. 2) Act 2024, effective 1 October 2024). Below Rs 50,000 a month? No TDS at all.

When a tenant pays rent to an NRI landlord, the non-resident entries in Section 393 apply. This is the current successor to former Section 195. The withholding rate is not safely determined by copying the resident-landlord percentage.

The applicable rate is not safely determined from the landlord’s apparent income or by copying a capital-gains or resident-rent percentage. The tenant should obtain a current computation that covers the statutory rate, surcharge, cess, PAN position and any lower-deduction certificate.

The part that catches tenants off guard is that the resident-landlord threshold does not carry across to a non-resident payment. Establish the landlord’s status and the current Section 393 entry before the first payment.

Think of it this way. When your landlord is a resident, the tax department trusts that they will file a return and pay tax. When your landlord is an NRI, the department wants its share upfront, because collecting from someone sitting in Seattle or Singapore is harder than collecting from someone in Bengaluru.

The TDS Rates: What Gets Deducted

The reporting and rate questions differ by payee status:

A missing PAN can increase withholding and creates problems downstream when the landlord files a return or claims credit. Every NRI renting out property should provide a valid PAN.

What the Tenant Must Do: A Step-by-Step

The tenant’s obligations when renting from an NRI are significantly more involved than renting from a resident. Here is the checklist:

1. Obtain a TAN (Tax Deduction Account Number).

Unlike rent paid to residents (where PAN suffices under Section 194-IB), paying rent to an NRI requires the tenant to have a TAN. Apply on the NSDL/UTIITSL website using Form 49B. This applies even if the tenant is a salaried individual, not a business.

2. Deduct TDS from every payment.

TDS must be deducted at the time of payment or credit to the NRI’s account, whichever is earlier. This means every monthly rent payment triggers a deduction. You cannot accumulate rent for three months and deduct TDS only once.

3. Deposit TDS with the government by the 7th of the following month.

If you deduct TDS from January rent, deposit it by 7 February. The only exception: for March, the deadline extends to 30 April.

4. File Form 144 every quarter.

Form 144 is the current quarterly TDS return for TAN-based payments to non-residents and replaced Form 27Q. Do not use the resident-rent schedule merely because it is familiar. The wrong statement can prevent the credit from appearing correctly in the landlord’s records.

5. Issue Form 16A to the NRI landlord.

Form 16A is the TDS certificate. The tenant must generate it from TRACES (the TDS portal) and provide it to the NRI landlord within 15 days of filing the quarterly return. The NRI needs this to claim TDS credit when filing their Indian tax return.

6. Ensure Form 15CA/15CB compliance if applicable.

If the rent is being remitted abroad (for instance, if the NRI landlord wants the money sent directly to their overseas account), the tenant must file Form 15CA with the Income Tax Department. If the total remittance exceeds Rs 5 lakh in the financial year, a Chartered Accountant’s certificate (Form 15CB) is also required.

In practice, most NRI landlords receive rent into their NRO account in India, so the tenant is not making a cross-border remittance. But if the NRI later wants to repatriate that rental income, the NRI themselves will need to file Form 15CA/15CB through their bank.

When the Tenant Gets It Wrong

The consequences of non-compliance are not theoretical. They are codified in the Income Tax Act and enforced regularly.

Interest under Section 201(1A):

If the tenant fails to deduct TDS, interest runs at 1% per month from the date the TDS should have been deducted until the date it is actually deducted. If TDS is deducted but deposited late, interest runs at 1.5% per month.

Penalty under Section 271C:

A penalty equal to the amount of TDS that should have been deducted. If you should have deducted Rs 1,87,200 over the year and deducted nothing, the penalty can be Rs 1,87,200 on top of the TDS itself.

Prosecution under Section 276B:

If TDS is deducted but not deposited with the government, the tenant faces prosecution with imprisonment ranging from three months to seven years, plus a fine. This is a criminal offence, not just a civil penalty.

Disallowance under Section 40(a)(i):

If the tenant is a business and claims the rent as a business expense, the entire rent payment gets disallowed as a deduction if TDS was not deducted. This increases the tenant’s taxable income by the full rent amount.

The Supreme Court in GE India Technology Centre v. CIT [(2010) 327 ITR 456] clarified the scope of Section 195: “The obligation to deduct TAS [tax at source] arises only when there is a sum chargeable under the Act.” Rent paid to an NRI is clearly chargeable to tax in India, so there is no escape from the deduction obligation. The Court further held that the obligation is “limited to the appropriate proportion of income chargeable under the Act forming part of the gross sum of money payable to the non-resident.”

This means the tenant must deduct TDS on the full rent, because the full rent is income chargeable to tax in the NRI landlord’s hands (subject to the standard 30% deduction for repairs and maintenance that the NRI claims when filing their return).

The ITAT Delhi, in Ajay Guliya v. ITO (2012), upheld TDS liability on an individual tenant paying rent to an NRI landlord, confirming that Section 195 applies to “any person,” not just businesses.

A Worked Example

Rajeev, an IT professional in Hyderabad, rents an apartment for Rs 45,000 per month from an NRI landlord based in Dubai.

Without understanding the non-resident withholding rule:

Rajeev pays Rs 45,000 every month into the landlord’s NRO account. No TDS is deducted. After two years, the Income Tax Department notices the mismatch. Rajeev receives a notice under Section 201, demanding:

• The unpaid deduction calculated under the rate applicable to each payment
• Interest under the current late-deduction rule
• Possible penalty or other proceedings, depending on the facts

That is more than 13 months of rent, payable by the tenant, not the landlord.

With proper compliance:

Rajeev obtains the required TAN, follows his adviser’s current rate computation, deposits each deduction on time and files Form 144 quarterly. The landlord receives Form 16A and reconciles the credit when filing the Indian return.

The Lower Deduction Certificate: Reducing TDS Legally

If ordinary withholding would materially exceed the expected liability, the landlord can assess the lower-deduction route before payments begin.

Under Section 395(1), an NRI can apply using Form 128 for a lower or nil deduction certificate. This is the current successor to former Section 197/Form 13.

Why would your actual tax liability be lower?

Because the Income Tax Act allows a standard deduction of 30% on the net annual value of rental income (after deducting municipal taxes). So if your gross annual rent is Rs 6 lakh:

• Less municipal taxes (say Rs 12,000): Rs 5,88,000
• Less 30% standard deduction: Rs 1,76,400
• Taxable rental income: Rs 4,11,600

The final tax and the amount withheld during the year are different calculations. A lower-deduction certificate, if issued, tells the tenant which rate to use and can reduce avoidable refund dependence.

How to apply:

1. File Form 128 through the current electronic route
2. Attach supporting documents: rental agreement, previous year’s ITR, PAN, passport copy, and computation of expected rental income
3. The Assessing Officer reviews and issues a certificate specifying the reduced TDS rate

Timeline: Apply at least 30 to 45 days before the start of the financial year or the start of the tenancy, whichever is later. Processing typically takes 15 to 45 days.

Documents required:

• Copy of the rental or lease agreement
• Previous year’s ITR acknowledgement and computation
• PAN card and passport copy
• Bank statement showing NRO account credits
• Municipal tax receipts (if any)
• Computation of expected rental income for the year

Keeping all these documents organised is essential, particularly when you are managing the process from another country. A platform like Assetly can help you store and track every document in one place, so nothing is missing when your CA or Assessing Officer asks for it.

NRO Account Rules for Rental Income

All rental income from Indian property must be credited to the NRI’s NRO (Non-Resident Ordinary) account. Not the NRE account. Not a regular savings account. The NRO account.

This is an RBI requirement. The NRO account is designed to hold Indian-sourced income: rent, dividends, interest, pension, and proceeds from asset sales. Money in this account does not flow freely abroad. To repatriate rental income from an NRO account, the NRI must:

1. Ensure TDS has been properly deducted and deposited by the tenant
2. File an Indian income tax return for the relevant year
3. Obtain a Form 15CB certificate from a Chartered Accountant, confirming taxes have been paid
4. File Form 15CA on the Income Tax e-filing portal
5. Submit the Form 15CA acknowledgement to their bank
6. The bank processes the outward remittance (typically 3 to 5 working days)

The annual repatriation limit from NRO accounts is USD 1 million per financial year, covering rental income, sale proceeds, interest, and all other Indian income combined.

For a detailed breakdown of NRE versus NRO accounts and FEMA repatriation rules, see our companion guide. If you are considering selling the property instead, our capital gains tax guide for NRIs covers the tax implications, and our Form 15CA/15CB guide walks through the repatriation process for sale proceeds.

DTAA: Avoiding Double Taxation on Rental Income

If you are an NRI earning rental income in India, your country of residence might also want to tax that income. India’s Double Taxation Avoidance Agreements (DTAAs) with over 90 countries prevent you from being taxed twice.

For rental income from immovable property, the standard DTAA position is: India (the source country) gets to tax first. Your country of residence then gives you credit for the tax paid in India, or exempts the income entirely.

How this works in practice:

To claim DTAA benefits, you need:

1. A Tax Residency Certificate (TRC) from your country of residence
2. Form 16A from your tenant (proving TDS was deducted and deposited)
3. Your Indian ITR acknowledgement for the relevant year

Without a TRC, the Indian tax authorities will not apply DTAA provisions, and your country’s tax authority may not accept the Foreign Tax Credit claim. Get this certificate from your country’s tax authority before filing.

Common Mistakes Both Sides Make

1. Tenant does not deduct TDS at all.

This is the most common mistake. The tenant, used to paying rent to resident landlords, assumes the resident threshold and form apply. They do not govern a payment to a non-resident landlord.

2. Tenant copies a resident-rent rate instead of calculating the Section 393 amount.

The tenant applies the resident rate. The shortfall makes the tenant an assessee in default, liable for the difference plus interest and penalties.

3. Filing the resident-rent schedule instead of Form 144.

The resident-rent schedule and the non-resident Form 144 route are different. Using the wrong statement can prevent the NRI landlord’s credit from appearing correctly, leading to demands and notices.

4. NRI landlord does not file an Indian tax return.

Some NRI landlords assume that because TDS has been deducted, no return is needed. This is wrong. Filing an ITR is necessary to claim the standard 30% deduction on rental income, get a refund for excess TDS, and maintain a clean tax record. The due date is 31 July of the assessment year.

5. NRI landlord does not apply for a Lower Deduction Certificate.

Many NRI landlords do not know about Section 395/Form 128 and discover an excessive deduction only when reconciling their return. Applying before the financial year starts can reduce unnecessary cash-flow drag.

6. Not documenting the landlord’s residential status.

The tenant should have a written declaration from the landlord about their residential status. If the landlord later claims to be a resident (or the department claims the landlord was a resident), proper documentation protects the tenant. Keep a copy of the landlord’s passport, visa, and a declaration of NRI status with the lease agreement.

7. Not keeping records for long enough.

Both the tenant and the NRI landlord should retain the challans, Form 16A, Form 144 acknowledgements, bank statements and rental agreements for the period their adviser recommends under the current limitation rules.

If You Are an NRI Landlord: A Checklist

1. Get a PAN if you do not have one. Without it, TDS complications multiply.
2. Open an NRO account for receiving rental income. Rent cannot go into an NRE account.
3. Assess a lower-deduction certificate using Form 128 under Section 395 before the financial year starts.
4. Brief your tenant on the TAN, Form 144, rate, deposit and certificate obligations. Share this guide with them.
5. Collect Form 16A from the tenant every quarter. Verify that TDS credits appear in your Form 26AS on the Income Tax portal.
6. File your Indian income tax return by 31 July of the assessment year, claiming the standard 30% deduction and any refund for excess TDS.
7. Get a Tax Residency Certificate from your country of residence if you plan to claim DTAA benefits.
8. File Form 15CA/15CB if you want to repatriate rental income from your NRO account.
9. Store all documents securely. Lease agreement, Form 16A, ITR acknowledgements, NRO statements, and TRC. You may need them for years.

If You Are a Tenant: A Checklist

1. Ask your landlord about their residential status before signing the lease. If they are an NRI, the non-resident entries in Section 393 apply.
2. Apply for a TAN using Form 49B on the NSDL website.
3. Deduct at the current applicable rate from every rent payment, or at the rate specified in a valid lower-deduction certificate.
4. Deposit TDS by the 7th of the following month using the online challan.
5. File Form 144 every quarter as required, not the resident-rent schedule.
6. Generate and issue Form 16A after filing the applicable statement.
7. Keep records of the challans, Form 144 filings and the landlord’s PAN, status evidence and declaration.

Inherited Property and Rental Income

If you have inherited property in India and are renting it out, the inheritance itself is not taxable, but rental income can still attract withholding under Section 393. Have the tenant confirm the current rate and reporting route.

One additional consideration: make sure the property records have been updated through mutation to reflect your ownership. If the property is still in the deceased owner’s name, tenants and banks may raise questions about who the legal landlord is. Getting a fresh encumbrance certificate also helps confirm there are no liens or disputes on the property before you enter into a rental agreement.

India’s broader property dispute crisis makes these document checks essential, not optional.

Assetly is a property document management platform that helps Indian property owners organise, verify, and track their property documents digitally. Learn more.