The tax is manageable; the deduction at source is what catches people
Indian rental income is not heavily taxed in most NRI cases: after municipal taxes, the standard deduction and loan interest, the taxable profit is frequently modest and sometimes a loss.
What surprises people is what arrives in the bank. Because the landlord is non-resident, the tenant is obliged to withhold tax from the rent at a rate set without reference to any of those deductions — so the amount withheld routinely exceeds the actual liability, sometimes by a wide margin. The excess is recoverable, but only through a mechanism most non-resident landlords never engage with.
What an NRI may and may not acquire
Acquisition of immovable property by non-residents sits under FEMA rather than tax law, administered by the Reserve Bank of India through its Master Direction on acquisition and transfer of immovable property.
| Asset | Purchase | Inheritance |
|---|---|---|
| Residential property | Permitted | Permitted |
| Commercial property | Permitted | Permitted |
| Agricultural land | Not permitted | Permitted |
| Plantation property | Not permitted | Permitted |
| Farmhouse | Not permitted | Permitted |
The restriction is one of category, not quantity: there is no limit on how many residential or commercial properties you may hold, but you cannot buy agricultural land through a resident relative acting as a front.
Inheritance operates on a different footing. Property inherited from a person resident in India may include agricultural land, plantation property or a farmhouse. What an inherited entitlement never becomes is a permission to buy more.
Funding the purchase, and why it decides repatriation
The account the money comes from at purchase determines what can leave India at sale — a decision made years before anyone thinks about disposal.
Under the FEMA regulations, the purchase must be funded by inward remittance through normal banking channels or from a non-resident account maintained under those rules. Cash or informal channels put the acquisition outside the permitted framework, whatever the property.
Where the consideration came from an NRE or FCNR account, or from funds remitted from abroad, sale proceeds are generally repatriable up to the amount originally invested, subject to the conditions in the regulations. Where it came from an NRO account — from rent, Indian earnings or inheritance — repatriation runs instead through the general annual limit applying to NRO balances. See our guides to NRE, NRO and FCNR accounts and repatriation from India.
Keep the remittance advices and the bank's foreign inward remittance certificate — reconstructing the funding route a decade later is unpleasant work.
How the taxable rent is actually computed
Income from house property is computed under a defined sequence in the Income-tax Act, and the sequence is the same for residents and non-residents alike.
You begin with the gross annual value, broadly the higher of the actual rent received and the property's reasonable letting value. From that you deduct municipal taxes — but only those actually paid during the year and actually borne by you rather than the tenant. Accrued and unpaid taxes give no deduction.
What remains is the net annual value, and two deductions come off it: a standard deduction expressed as a fixed percentage of that net figure, allowed without any need to show expenditure, and interest on capital borrowed to acquire, construct or repair the property. The standard deduction absorbs all ordinary running costs, so repairs, insurance and management fees give no separate relief. Interest does the real work, and where the property is financed the computation commonly produces a loss — the set-off and carry-forward limits for which should be checked as they stand for your year.
The precise percentages change; take current figures from the Act for your year, not from any guide, including this one.
Why your tenant must deduct, and why the amount is wrong
For residents, the obligation to deduct from rent falls only on payers above a threshold and applies at a modest rate. For non-residents it works differently, and the difference catches both sides out.
Section 195 requires any person paying a non-resident a sum chargeable to tax to deduct at source. There is no small-payer carve-out and no monthly floor: an individual tenant renting a flat from an NRI landlord carries the same duty as a company. The tenant needs a TAN, must deposit the tax, file the quarterly statement and issue the certificate. Many have never heard of any of this.
The rate applied is one appropriate to the income's character, plus surcharge and cess — not a rate derived from your computation, into which municipal taxes, the standard deduction and your loan interest simply do not enter. Deduction is made on something close to gross rent while tax is charged on net profit, and the gap between the two is the over-deduction. Where the property is mortgaged and the computation yields a loss, the correct liability may be nil while withholding continues at full rate all year.
The two ways to recover the excess
There are exactly two, and only one of them works in advance.
Form 13, before the fact. Section 197 allows you to apply to the assessing officer for a certificate authorising deduction at a lower rate or at nil. The application is made on Form 13 through the TRACES portal, supported by your computation, the tenancy agreement, prior returns and your PAN. Once granted, the certificate goes to the tenant, who deducts at the certified rate. It is prospective, so it must be obtained before the rent starts flowing.
A return, after the fact. Where no certificate was obtained, the over-deducted tax is recovered by filing an Indian return, claiming credit for the tax deducted and receiving the excess as a refund. Filing is therefore worthwhile even where the deducted tax discharges the liability: no other route returns the money. Where a treaty reduces the applicable rate, a Tax Residency Certificate from your country of residence is generally needed to support the claim — see DTAA relief and the Tax Residency Certificate.
Managing a property from abroad
Most of the friction in letting from overseas is administrative, and a properly drawn power of attorney removes much of it: it lets a trusted person in India execute tenancy documents, deal with the society and municipality, and handle bank formalities without you travelling.
Draft it narrowly. A general power that also permits sale is a serious exposure; a document limited to letting and management does the job. One executed abroad is typically notarised and apostilled or attested at an Indian mission, then stamped and, where required, registered in India — formalities worth getting right at the outset, because a defective instrument is discovered at the moment it is needed.
Selling is a separate matter, with its own withholding regime and repatriation limits, covered in a dedicated guide.
When you return to India
The rent was always Indian-source and taxable in India, so becoming resident does not bring it into charge. What changes is the machinery around it.
Section 195 applies to payments made to non-residents. Once you are resident it stops applying, and the resident rent provisions take over with their own threshold and rate. Nobody notifies your tenant of this, so tell them, or the wrong deduction continues indefinitely. Your status for the year of return follows the day-count rules in the India residential status test, and the transitional shelter available to many returners is covered in our guide to RNOR planning. Note that FEMA residence and income-tax residence are decided separately and can diverge: your account designations follow the FEMA position, not the tax one.
Compliance caveat
This guide describes in general terms the FEMA framework for acquisition of immovable property by non-residents, the computation of income from house property, and deduction at source under section 195. It does not address the taxation of a disposal, jointly held or inherited property, GST on commercial letting, or the loss set-off and carry-forward limits in detail. Rates, thresholds and percentages change and are not stated here as current figures. This is a simplified guide, not tax or legal advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Confirm your position with a qualified Indian tax adviser before filing or acting on anything here.
How Global Investments can help
Most of the cost in letting Indian property from abroad is not tax — it is tax withheld and never reclaimed, and funding trails that were never documented. Our advisers work with non-resident owners to establish the funding route behind an existing holding and what it means for eventual repatriation, assess whether a section 197 application is worth making before the next tenancy begins, and coordinate with Indian tax specialists on the return that recovers over-deducted amounts. Get in touch to discuss your circumstances.
Frequently asked questions
Can I buy agricultural land in India as an NRI?
No. The FEMA regulations governing acquisition and transfer of immovable property permit a non-resident Indian to acquire residential and commercial property by purchase, but expressly exclude agricultural land, plantation property and farmhouses from what may be bought. You may still come to own such land by inheritance, and the RBI has historically considered specific requests on a case-by-case basis, but there is no general right of purchase and no route that converts a residential permission into an agricultural one.
Who is responsible for deducting tax when rent is paid to an NRI?
The tenant is. Under section 195 of the Income-tax Act, any person paying a sum chargeable to tax to a non-resident must deduct at source, and unlike the resident rent provisions there is no small-payer exemption and no monthly threshold below which the duty falls away. That places the obligation on an individual tenant who may have no idea the requirement exists, which is why the landlord's residential status should be established in writing before the tenancy begins.
What happens if my tenant does not deduct tax at all?
The exposure sits primarily with the tenant, who can be treated as an assessee in default and charged the tax that should have been deducted, together with interest and potential penalty, and who may lose the deduction for the rent paid. The landlord's own liability on the income is unaffected either way, since the rental profit remains taxable whether or not anything was withheld. Discovering the omission years later is considerably more expensive than establishing the position at the outset.
How do I stop tax being deducted at more than I actually owe?
Apply for a certificate under section 197 using Form 13, filed electronically through the TRACES portal, which asks the assessing officer to authorise deduction at a lower rate or at nil. The application is supported by your computation, the tenancy documents, prior returns and your PAN. It is prospective only, so it needs to be in place before the rent starts flowing; a certificate obtained in January does nothing about tax withheld the preceding April.
Do I have to file an Indian tax return if TDS has already been deducted?
You may not be strictly required to where the deducted tax covers the liability in full, but filing is usually worthwhile regardless. A return is the only mechanism through which over-deducted tax is refunded, and because deduction under section 195 is calculated without reference to municipal taxes, the standard deduction or loan interest, over-deduction is the normal outcome rather than the exception. Not filing simply leaves the excess with the exchequer permanently.
Can rental income be remitted out of India?
Rent is current-account income rather than capital, and the FEMA framework treats current-account remittances far more permissively than capital ones. In practice the rent is credited to an NRO account and remitted from there with the certification an authorised dealer bank requires, typically a chartered accountant's certificate in Form 15CB and a Form 15CA declaration. Our guide to repatriation from India sets out the documentation and the annual limits that apply to NRO balances.
What happens to my Indian rental income when I move back to India?
The rent was always Indian-source income and was always taxable in India, so the charge on it does not change. What changes is the deduction machinery, because section 195 applies to payments to non-residents specifically and ceases to apply once you are resident, at which point the resident rent provisions with their own thresholds take over. Your tenant needs telling, since nobody else will tell them and the wrong deduction continues by default.
This guide is general information only and does not constitute financial, legal or tax advice. Global Investments is not authorised by the Financial Conduct Authority or by the Securities and Exchange Board of India. Indian tax and exchange control rules change and individual circumstances vary. Always seek advice from a qualified adviser in the relevant jurisdiction before acting.