Landlords abroad often treat Indian rent as too small to be worth a filing. The arithmetic usually runs the other way, because the tax taken at source on a non-resident's rent is calculated on the gross figure, and the return is the mechanism that gives the difference back.
How the income is computed
Rent from a building and the land appurtenant to it, owned by you, is charged under the head income from house property in the Income-tax Act, 2025. The starting point is the annual value, which the Act deems to be the higher of the sum for which the property might reasonably be expected to let from year to year, or the actual rent received or receivable where it is let. Where the property was vacant for part of the year and the actual rent falls below the notional figure because of the vacancy, the amount actually received or receivable is taken instead. The annual value is then reduced by the local authority taxes actually paid by you during the year.
From that figure the Act allows a flat statutory deduction, calculated as a percentage of annual value, plus the interest payable on capital borrowed to acquire, construct, repair, renew or reconstruct the property, with interest for the period before acquisition or construction spread over five years. Interest chargeable under the Act that is payable outside India is not deductible on the same terms, which catches NRIs who service a foreign mortgage on an Indian flat.
What your tenant has to do
This is where a non-resident landlord differs sharply from a resident one. The rate and threshold your tenant may have read about apply to rent paid to a resident. Rent paid to a non-resident falls in the separate table of payments to a non-resident, which catches any sum chargeable under the Act, at the rates in force, with no threshold. Your tenant also needs a tax deduction and collection account number to do it, and must have your permanent account number, failing which he is required to deduct at a higher rate.
A tenant who deducts at the resident rate, or does not deduct at all, becomes an assessee in default for the shortfall with interest and penalty. When that surfaces two years later he will look for the money from you, and the argument about who should have told whom is one nobody wins. Put your status, your permanent account number and the deduction obligation in the tenancy agreement, and give him the details in writing on day one.
Whether you must file
The Act requires an individual to furnish a return where total income, computed before giving effect to the reinvestment reliefs and the deduction chapters, exceeds the maximum amount not chargeable to tax. That test applies to you as it does to anyone else, and it is applied to your Indian income.
There is a filing exemption for non-resident Indians, and it is narrower than people hope. It says a return need not be furnished where total income for the year consisted only of investment income or long-term capital gains from foreign exchange assets, or both, and tax has been deducted at source from that income. Rental income does not fall in either category, so the exemption does not help a landlord. Whether filing is compulsory still depends on Section 263, including the income threshold and applicable conditions. Section 433 requires a refund claim through a return under that section. TDS by the tenant does not replace your final tax calculation.
Five practical points
- Keep the municipal tax receipts. Only tax actually paid during the year comes off the annual value, and it has to be paid by you as owner.
- Watch the second property. A property that is not let can still carry a deemed annual value, subject to the concessions in the Act. Owning two flats and letting one is not the same as having one source of income.
- Reconcile the deduction every year. Ask the tenant for the deduction certificate and check that it appears against your permanent account number, because a deposit made against the wrong number is a long correction.
- Consider a certificate where the deduction is plainly excessive. The Act allows the payee to apply to the Assessing Officer for deduction at a lower rate or none, which can be worth doing where the interest deduction wipes out most of the income.
- Credit the rent to the right account. Current income such as rent may be credited to a non-resident external account only where the bank is satisfied that it is current income and that income tax on it has been deducted, paid or provided for.
The two things it connects to
Getting the rent out of India is a separate exercise from paying tax on it, with its own annual ceiling and bank documentation, and our guide on repatriating money from India as an NRI sets that out. And when you eventually sell the flat, the deduction the buyer must make is calculated on the whole consideration rather than on your gain unless a certificate is obtained first, which our guide on tax deduction when an NRI sells Indian property explains. The computation of your rental income, the deductions available and the treaty position should be confirmed with a chartered accountant for the relevant tax year.