Tax Implications on Rental Income of Non-Resident Indian (NRI)/ Foreigner
Statement of Financial Transactions (SFT): Tax Compliance in India
May 16, 2025Introduction
Rental income from property situated in India is taxable in India even if the owner is an NRI or a Foreigner residing abroad. Accordingly, person paying rent to an NRI (i.e. Tenant) is liable for deducting tax.
TDS compliances on rent paid to NRI is one of the burdensome compliances for certain reasons. Unlike rent paid to resident landlords, rental payments to Non-Resident Indians (NRIs) attract higher TDS under the NR withholding provisions. NRI’s generally do have following income from India-
- Interest on NRE Account- This is exempt from tax.
- Other Interest Income, dividend Income and Capital Gains- These are generally between 3-4 lacs per annum hence does not create major challenge. Also, there are NIL/ Lower TDS liability on this.
Rental Income- Considering the NRI has invested in Tier-1 or Tier-2 cities, the basic Rental Income ranges from 3 lacs- 24 lacs p.a.
TDS Difference between Resident owner and NRI’s owner
| Particulars | Resident Owner | Non-Resident Owner | ||
| TDS Rate (in %) | Amount | TDS Rate (in %) | Amount | |
| Gross Rental | 12,00,000 | 12,00,000 | ||
| Basic Rate | 2 | 1,20,000 | 30 | 3,60,000 |
| Cess | N/A | – | 4 | 14,000 |
| Total | 2 | 1,20,000 | 31.40 | 3,74,000 |
* For the simplicity of example, we have not considered surcharge.
Key Points related to the TDS on Rental Income for NRI-
- There is no transaction limit while deducting tax for rent payment to NRI. As against, while we make rental payment to Resident, there is a limit of INR 50,000 per month.
- While TDS is deducted on gross rent, NRIs are still eligible for deductions while filing their tax returns such as- standard deduction of 30%, Municipal taxes and housing loan interest deduction.
- TDS is deducted on gross rent, not on net taxable income.
Lower Deduction Certificate for NRI Rental Income
The most effective solution is applying for a Lower Deduction Certificate (LDC) from the Income Tax Department.
This allows the tenant to deduct tax at a lower rate based on estimated taxable income instead of deducting tax at 31.2%., which generally falls till 5 to 10% depending on the amount of rental Income and other components of Income.
Benefits of Lower Deduction Certificate
- Better liquidity of cashflows, which can help in Investment or repayment of existing loan.
- Lower refund dependency and more accurate tax withholding.
This is especially more beneficial where:
- Home loan interest is high
- Rental yield is low
- Property is jointly owned
- Actual tax liability is minimal
There has been a constant effort from government in this direction such as reducing the requirement of TAN on sale of property by NRI & automated/ easier process for obtaining LDC through Budget 2026.
Read my article on this initiatives-
In case of any queries, you can write us at jigar@jcsuba.in.
