Should NRIs Rent Their House? Tax on Rental Income in India (2026 Rules)

Rakesh (name changed), a mechanical engineer in Sharjah, called me in a panic last October. His tenant in Pune had been paying rent into his NRO account for four years. Clean bank transfers. Nothing hidden.

Then a notice arrived. Not for Rakesh. For the tenant.

The tenant had been deducting 2% TDS the way any salaried Indian does when paying rent to a resident landlord. Wrong section. Wrong rate. The demand, with interest and penalty, crossed Rs 2.4 lakh. And the tenant wanted Rakesh to make it good.

Read – Indian Tax for NRI on Indian Income

What actually gets taxed, and what you get to deduct

The tax is not on the rent you receive. It is on what is left after three deductions. Most NRIs I speak to have never been told this properly.

One: municipal taxes, but only the amount actually paid during the year. An unpaid demand does not count.

Two: a flat 30% standard deduction on what remains. You do not need a single repair bill for this. Painted the flat or not, you get the 30%.

Three: the full interest paid on a home loan for that property under Section 24. On a let-out property there is no ceiling on the interest you can claim against the rent. The ceiling appears only when the result is a loss: house property loss can be set off against your other Indian income only up to Rs 2 lakh a year. The balance carries forward for eight years, and after that it can only be used against future house property income.

One point that catches people out. Under the new tax regime, which is now the default, the Section 80C deduction for principal repayment is gone. So is the interest deduction on a self-occupied flat. Both survive only in the old regime, which you have to actively choose. Advice telling you to claim the principal under 80C is running on pre-2020 rules.

The TDS trap that catches almost every NRI landlord

This is where Rakesh got burnt, and where I see the most damage.

When a tenant pays rent to a resident Indian, the deduction is small and simple. When the landlord is an NRI, that entire route shuts down. The payment falls under Section 195, and the rate is 30% plus surcharge and health and education cess. In practice most tenants deduct 31.2%, and it climbs higher once surcharge applies at bigger incomes.

Three things make it painful:

• There is no threshold. Section 194-IB has a monthly floor. Section 195 has none. Rent of Rs 12,000 a month is covered exactly like rent of Rs 1.2 lakh.
• The tenant needs a TAN and must file Form 27Q every quarter, then hand you Form 16A.
• TDS is on gross rent, before any of your deductions. So the government holds far more than you will ever owe.

Think of it like airport security taking your entire bag and returning what you are allowed to carry, months later. Nothing is stolen. You just do not have your things when you need them.

A real working, with real numbers

Take a 2BHK in Bengaluru let out at Rs 45,000 a month. There is a home loan running. Municipal tax paid during the year is Rs 12,000.

Rs 1,68,480 leaves your hands. Your tax on the rent is zero. Every rupee of it comes back only when you file a return, and only if you file a return.

Check – Tax Rates for NRIs on Indian Income and Investments

Where the money lands, and how to take it out

Rent must be credited to your NRO account. The only exception is when the tenant is paying you out of an NRE account, which is rare.

NRO money is repatriable up to USD 1 million per financial year, once you route it through Form 15CA and a chartered accountant’s Form 15CB. Taxes have to be settled first. The bank will not move the money otherwise.

If your country of residence taxes worldwide income, the rent is reportable there too. India has tax treaties with most major countries, so you claim credit for the Indian tax rather than paying twice. A UAE or Saudi resident usually has nothing more to pay. A US or UK resident almost always does.

The 2% yield nobody wants to talk about

Residential rental yield in Indian metros sits at roughly 2% to 3.5% of the property’s market value. A flat worth Rs 1.1 crore fetching Rs 45,000 a month is yielding under 5%, and that is before you subtract society charges, vacancy months, repainting between tenants, and the broker’s one month fee.

A plain fixed deposit, or a conservative debt allocation, does better without a single phone call to a plumber in Kharadi. That does not automatically make renting wrong. It does mean you should stop calling it a great investment and start calling it what it is: a way to keep an asset occupied and maintained while it appreciates.

Why the flat feels more valuable than it is

There is a well documented quirk in how we value things we already own. Give someone a coffee mug and they will demand twice as much to sell it as they would have paid to buy it an hour earlier. Economists call it the endowment effect.

Property does this to NRIs harder than anything else. That Pune flat is not a spreadsheet line. It is the first thing you bought after your promotion. Your mother chose the tiles. You still remember the registry queue.

So try one honest question. If you had Rs 1.1 crore sitting in cash in your account today, would you go out and buy that exact flat at that exact price?

In two decades of asking, I would say four out of five clients say no. Which means they are not holding it because it is a good asset. They are holding it because it is theirs. Yeh ghar hai, investment nahi. Fine. Just be clear which one you are running.

Also read – NRI Investment Options in India

Questions NRI landlords keep asking

My tenant refuses to get a TAN. What now?
Then you have a problem, because the obligation is legally his. Some landlords quietly accept a lower deduction and carry the risk. That risk is real: interest, penalty and disallowance all land on the tenant, and he will come to you. The cleaner route is a Section 197 certificate, which reduces the amount he has to deduct and makes him far more willing.

Can I receive rent directly in my NRE account?
Only if the tenant is paying from his own NRE account, which almost never happens. Rent from a resident tenant goes to NRO.

Do I have to file an Indian return if TDS is already deducted?
If you want your refund, yes. And in the example above the refund was the entire tax deducted. Filing is also how the loss gets recorded for carry forward.

Is a second flat taxed even if it is locked?
Two houses can be treated as self-occupied with nil value. From the third onwards, a notional rent is added to your income even if nobody lives there.

What about the tax when I eventually sell?
Held over 24 months, gains are long term and taxed at 12.5% plus surcharge and cess. The buyer must deduct TDS under Section 195 on the full sale value, not on the gain, which is why so many NRI sales get stuck. A Section 197 certificate fixes it. From 1 October 2026 buyers no longer need a TAN and can deposit the TDS using PAN, which removes one of the biggest deal blockers.

Does becoming RNOR when I return change any of this?
Not for the rent. Indian rent is Indian income and stays taxable. RNOR only shelters your foreign income. Read more on RNOR status here.

Rakesh sorted the notice out. It cost him a chartered accountant, seven weeks, and a tenant who moved out in December.

The rent was never the problem. Not knowing which section applied to him was.