Letting an Indian property as an NRI: how the rent is taxed

Why it is taxable in India

Income is taxed where it arises as well as where the recipient is resident. Rent from a property in India arises in India, so India taxes it regardless of the owner's residence.

That does not necessarily mean double taxation. Your country of residence may also tax it, and relief for the Indian tax is commonly available under the applicable treaty — but the Indian liability exists first.

How the taxable amount is computed

Rental income is not taxed on the gross rent. It is computed under the head of income from house property, and several deductions apply before the taxable figure emerges.

• Start from the annual value, broadly the rent receivable.
• Deduct municipal taxes actually paid by the owner during the year.
• Apply the statutory standard deduction for repairs and maintenance — allowed regardless of what you actually spent.
• Deduct interest on a loan taken for the property, subject to the applicable limits.
• The balance is taxable at the rates applicable to you.

The tenant's TDS obligation

Where rent is paid to a non-resident, the tenant is required to deduct tax at source before paying, and to deposit it. This is a different provision, and a different rate, from the one that applies to rent paid to a resident landlord.

In practice most individual tenants are unaware of this. The consequence of non-compliance falls on the tenant, but it becomes the landlord's problem too — through disputes, through mismatches in tax credit, and through the awkwardness of raising it after a tenancy has begun.

• Raise it before the tenancy starts, in writing, in the agreement.
• The tenant generally needs a TAN to comply.
• Ensure the deduction is properly deposited and reflected against your PAN, or you cannot claim credit for it.
• Where a lower deduction is appropriate, there is a procedure for obtaining a certificate — take advice on it.

Filing and the account the rent goes into

Rent from Indian property is Indian-source income and is normally credited to an NRO account. That has consequences for repatriation, which is subject to limits and procedure for NRO balances.

An Indian return is generally required, and filing is also how you claim credit for the tax the tenant deducted. Not filing does not remove the liability; it removes your ability to reclaim over-deduction.

Relief in your country of residence

Most treaties provide relief so that the same income is not effectively taxed twice — typically by giving credit in your country of residence for tax paid in India.

How that works depends entirely on which treaty applies and on domestic law in your country of residence. It is not something to assume; get it confirmed for your own situation.

Where this needs advice

This describes the mechanism. The rates, limits and procedures are detailed, periodically amended, and depend on your circumstances.

Take advice from someone who can see both sides — the Indian position and the position in your country of residence. Advisers who only see one side routinely produce answers that are correct in isolation and wrong overall.