NRI Rental Income: What Your Tenant Must Deduct

Thirty-one point two per cent.

That is how much your tenant must deduct from your rent, every single month, if you are an NRI landlord in India. Not 10%. Not the 2% that applies to rent paid to resident landlords under Section 194-IB. A flat 30% base rate, plus 4% health and education cess, right from the first rupee.

If your tenant is paying you Rs 50,000 a month in rent, Rs 15,600 goes to the government before you see a single rupee. Over a year, that is Rs 1,87,200 deducted as TDS on rental income of Rs 6 lakh.

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 and thresholds mentioned in this guide are current as of March 2026. The Finance Act may revise these annually. Always verify the latest rates on the Income Tax Department portal 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, none of those sections apply. Instead, Section 195 kicks in. Section 195 governs all payments to non-residents, whether it is rent, consulting fees, interest, or royalties. The TDS rate is not a flat percentage. It is the rate at which the NRI’s income is taxable in India.

For rental income, that means the NRI’s applicable slab rate, which tops out at 30%. Add the 4% health and education cess, and the effective rate becomes 31.2%.

And here is the part that catches tenants off guard: there is no minimum threshold. Under Section 194-IB, a tenant paying Rs 40,000 a month to a resident landlord owes no TDS. Under Section 195, a tenant paying Rs 10,000 a month to an NRI landlord must deduct 31.2%. The obligation starts from rupee one.

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 rate depends on the NRI landlord’s total income in India, but for most rental income scenarios, the rates work out as follows:

For most individual NRI landlords earning only rental income in India, the effective rate is 31.2% (no surcharge applies when total income is below Rs 50 lakh).

One important point about Section 206AA: When the payee does not provide a PAN, TDS jumps to the higher of the prescribed rate or 20%. Since the prescribed rate for NRI rental income is already 30%, the 206AA floor of 20% does not change the rate. But not having a PAN creates problems downstream, making it harder for the NRI to file returns and claim refunds. Every NRI renting out property should have a 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 27Q every quarter.

This is the quarterly TDS return for payments to non-residents. Do not use Form 26QB (that is for TDS on property purchases from residents) or Form 26QC (that is for TDS on rent under Section 194-IB to residents). The wrong form means the TDS credit will not appear in the NRI landlord’s tax 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 Section 195:

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:

• TDS not deducted: Rs 45,000 x 31.2% x 24 months = Rs 3,36,960
• Interest at 1% per month (accruing from each monthly default): approximately Rs 42,120
• Potential penalty under Section 271C: Rs 3,36,960
• Total exposure: Rs 7,16,040

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

With proper compliance:

Rajeev obtains a TAN, deducts Rs 14,040 (31.2% of Rs 45,000) each month, deposits it by the 7th of the following month, and files Form 27Q quarterly. The landlord receives Rs 30,960 per month. The landlord files an Indian tax return, claims the standard 30% deduction on rent, and gets a refund for excess TDS. Clean. No notices, no penalties.

The Lower Deduction Certificate: Reducing TDS Legally

Here is the good news for NRI landlords: you do not have to accept 31.2% TDS if your actual tax liability is lower.

Under Section 197, an NRI can apply for a Lower Deduction Certificate (LDC) that authorises the tenant to deduct TDS at a reduced rate, or even nil. This is the single most effective tool for NRI landlords, and most do not know it exists.

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

At the 30% slab rate plus cess, your actual tax liability is about Rs 1,28,419. But TDS at 31.2% on Rs 6 lakh gross rent is Rs 1,87,200. That is Rs 58,781 in excess TDS that you would need to claim as a refund.

With an LDC, you could get the TDS rate reduced to around 21%, matching your actual liability. The tenant deducts less, you get more cash in hand, and nobody waits 12 to 18 months for a refund.

How to apply:

1. File Form 13 on the TRACES portal
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, either does not know about Section 195 or assumes the Rs 50,000 threshold under Section 194-IB applies. It does not. Section 195 has no threshold.

2. Tenant deducts at 5% or 10% instead of 31.2%.

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 Form 26QC instead of Form 27Q.

Form 26QC is for TDS on rent paid to residents. Form 27Q is for TDS on payments to non-residents. Using the wrong form means the NRI landlord’s TDS credit does not appear in their tax records, leading to demands and notices. This is the same mistake that caused years of litigation in the Delhi High Court case discussed in our TDS on property sale guide.

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.

Most NRI landlords do not know about Section 197. They accept 31.2% TDS and then wait over a year for a refund. Applying for an LDC before the financial year starts can save lakhs in 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.

Tax assessments can be reopened for up to four years (or longer in cases of income escaping assessment). Both the tenant and the NRI landlord should keep TDS challans, Form 16A, Form 27Q filings, bank statements, and rental agreements for at least seven years.

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. Apply for a Lower Deduction Certificate (Form 13, Section 197) before the financial year starts, if your actual tax liability is lower than 31.2% of gross rent.
4. Brief your tenant on their obligations: TAN, Form 27Q, correct TDS rate, monthly deposit by the 7th. 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, Section 195 applies.
2. Apply for a TAN using Form 49B on the NSDL website.
3. Deduct 31.2% TDS from every rent payment (or the rate specified in the landlord’s Lower Deduction Certificate).
4. Deposit TDS by the 7th of the following month using the online challan.
5. File Form 27Q every quarter, not Form 26QC.
6. Generate and issue Form 16A to the landlord within 15 days of filing Form 27Q.
7. Keep records of all TDS challans, Form 27Q filings, and the landlord’s PAN, passport copy, and NRI declaration for at least seven years.

Inherited Property and Rental Income

If you have inherited property in India and are renting it out, the TDS rules are identical. The inheritance itself is not taxable, but the rental income is. Your tenant must deduct TDS under Section 195 at 31.2%.

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.