Tax on NRI-Owned Property in India — Rental Income and Multiple Properties

NRIs and OCIs can own an unlimited number of residential and commercial properties in India. The restriction under FEMA is only on agricultural land, plantations, and farmhouses — those cannot be purchased (see the buying property guide for the fuller picture). When it comes to income tax, however, there are several NRI-specific rules that apply to rental income and to the treatment of multiple properties. This guide covers the current position under the Income Tax Act as of 2026, including the changes introduced by the Finance Act 2019 (the two self-occupied property rule) and the shift to the new tax regime as default from FY 2023-24.

Income Tax on Rental Income — The Basic Framework

Rental income from Indian property is taxable in India, regardless of whether the owner is a resident or an NRI. It falls under the head "Income from House Property" in the Income Tax Act.

The computation follows a standard formula:

Gross Annual Value (rent received / receivable)
  Less: Municipal / property tax actually paid by the owner
= Net Annual Value (NAV)
  Less: 30% standard deduction on NAV (Section 24(a))
  Less: Interest on borrowed capital (Section 24(b))
= Income from House Property

The result — positive or negative — is added to the NRI's total income and taxed at applicable slab rates (if old regime) or as per the new tax regime schedule.

The Two-Property Self-Occupied Rule (Finance Act 2019)

Before April 2019, only one property could be claimed as self-occupied for tax purposes. Any additional property was automatically treated as "deemed let-out" with notional rental income, even if it was sitting empty.

Effective from Assessment Year 2020-21 (Financial Year 2019-20), the Finance Act 2019 changed this to allow up to two properties to be claimed as self-occupied, both with Nil annual value (no tax on notional rent).

How this works in practice

If you own one property — can be treated as self-occupied (annual value = Nil)
If you own two properties — both can be treated as self-occupied (annual value = Nil for both)
If you own three or more properties — two self-occupied, the rest deemed let-out with notional rental income
The choice of which properties to designate as self-occupied (when owning 3+) is made by the taxpayer each year — typically the two with the highest deemed rental value are chosen to minimise tax

For NRIs specifically

Since NRIs typically do not live in their Indian properties, the "self-occupied" designation under Indian tax law is available even if the property is kept vacant for your personal use (i.e., not let out). You are not required to actually live there.

Deemed Rental Income — When Does It Apply?

For a property that is treated as deemed let-out (third or subsequent property, or any property you choose not to designate as self-occupied), the Income Tax Act imputes notional rental income. The amount is the higher of:

Municipal value (annual value as per municipal records)
Fair rent (rent that similar property in the same area would fetch)
Standard rent (rent fixed under the Rent Control Act, where applicable) — but standard rent acts as a ceiling, not a floor

This notional amount is then treated as your gross annual value for tax purposes, reduced by municipal taxes paid, 30% standard deduction, and interest — exactly the same formula as for actually rented property.

Deductions You Can Claim

Municipal / property tax

The property tax actually paid to the local municipal authority (MCD, BBMP, MCGM, etc.) during the financial year is deductible from the gross rent before calculating NAV. Must be paid on actual basis — not merely accrued — to qualify.

30% Standard Deduction (Section 24(a))

A flat 30% of the Net Annual Value is allowed as standard deduction against expenses like repairs, maintenance, rent collection costs, etc. No bills or proof required — this is a flat allowance regardless of actual expenses.

Interest on borrowed capital (Section 24(b))

Interest paid on money borrowed to buy, construct, or repair the property is deductible. The limits differ by property type:

Self-occupied property: maximum Rs. 2,00,000 per financial year (per taxpayer, not per property; applies to whichever self-occupied property is claimed)
Let-out or deemed let-out property: no cap on interest deduction — full amount of interest paid is allowed

Important loss cap (Finance Act 2017): the total loss under "Income from House Property" that can be set off against other heads of income (salary, business, capital gains, other income) is capped at Rs. 2,00,000 per year. Any excess can be carried forward for 8 years and set off against future house property income only.

Pre-construction interest

Interest paid during the period before the property is ready for occupation is allowed as deduction in 5 equal instalments starting from the year of completion. Important for off-plan purchases where you pay EMI for years before receiving possession.

Principal repayment (old regime only)

Under the old tax regime, principal repayment of home loan qualifies for deduction under Section 80C up to Rs. 1,50,000 per FY, along with other 80C investments (ELSS, PPF, life insurance, etc.).

Not available in the new tax regime.

Old Tax Regime vs New Tax Regime — The Big Distinction

Since FY 2023-24, the new tax regime is the default for individuals. NRIs must actively choose the old regime if they prefer it (by filing Form 10-IEA before the ITR due date in the year they wish to opt out).

Under the NEW tax regime (default from FY 2023-24)

Self-occupied property interest deduction: NOT ALLOWED (the Rs. 2 lakh limit is withdrawn)
Let-out property interest deduction: Allowed, but only up to the actual rental income (no loss set-off against other heads, and no loss carry-forward)
30% standard deduction on NAV: Allowed
Section 80C principal repayment deduction: NOT allowed
Lower slab rates — which is what makes the new regime attractive despite fewer deductions

Under the OLD tax regime (still available, must be chosen)

Self-occupied interest: up to Rs. 2 lakh deductible
Let-out interest: unlimited, with Rs. 2 lakh loss set-off cap (excess carried forward 8 years)
30% standard deduction on NAV: Allowed
Section 80C principal repayment: up to Rs. 1.5 lakh
Higher slab rates

Which is better for NRI property owners?

It depends on the specifics:

High home loan interest + let-out property: Old regime typically wins because the interest deduction beyond actual rental income is lost under the new regime
Self-occupied property with large home loan: Old regime preserves the Rs. 2 lakh interest deduction
Rental income only, no significant deductions: New regime with lower slabs usually wins
Multiple properties with varied profiles: Run both calculations and pick

The choice can be changed from year to year (with some restrictions for those with business income).

TDS on Rent Paid to NRIs (Section 195)

This is the single biggest surprise for tenants renting from NRI landlords: tenants must deduct TDS on the entire rent paid to an NRI.

TDS rate: 30% plus applicable surcharge and health & education cess — effectively around 31.2% to 35.88% depending on the NRI landlord's income bracket
When deducted: at the time of payment of rent
How deposited: tenant pays the TDS amount to the Income Tax Department via Challan ITNS 281 within 7 days of the following month
TDS certificate: tenant issues Form 16A to the NRI landlord on a quarterly basis

The Lower TDS Certificate alternative

Standard 30%+ TDS often results in much more tax being deducted than is actually owed (the NRI's actual tax liability after the 30% standard deduction + interest deduction is often 10-20%). The solution is a Lower TDS Certificate under Section 197:

NRI applies on Form 13 on the TRACES portal
Provides estimated income, deductions, and tax computation
Assessing Officer issues a certificate specifying a lower TDS rate (e.g., 5% or 10%)
NRI gives this to the tenant; tenant deducts TDS at the lower rate

Worth the effort for rental income above about Rs. 2 lakh per year — the tax cash-flow saving pays for the CA fee many times over.

Tenant's PAN and TAN obligations

Tenants paying rent to NRI must have a TAN (Tax Deduction Account Number). Individuals paying rent above Rs. 50,000 per month can use their PAN instead under a simplified framework (Section 194-IB) — but only for rent paid to residents, not NRIs. For NRI landlords, the tenant needs a TAN and must file quarterly TDS returns.
This requirement sometimes causes NRI landlords to lose tenants who don't want the TAN hassle. Plan accordingly.

Where the Rent Goes

NRI rental income is credited to the NRI's NRO (Non-Resident Ordinary) account in India. It is taxable as above. After tax compliance, the net amount can be:

Retained in NRO and invested in FDs, MFs, or other permitted instruments
Transferred to NRE for onward repatriation (under the USD 1 million per FY limit — see the NRO-to-NRE transfer guide)
Repatriated directly from NRO abroad (Form 15CA/15CB required)

Income Tax Return Filing

NRIs with any Indian rental income generally file:

ITR-2 — individuals with income from salary/pension, house property, capital gains, and other sources (not business income)
ITR-3 — if you also have business/professional income in India

Due dates (FY 2024-25, AY 2025-26)

Non-audit cases: 31 July 2025
Audit cases: 31 October 2025 (NRI rental typically not audit-required)

PAN mandatory

PAN is mandatory for any NRI earning Indian income. Filing without PAN triggers TDS at the higher Section 206AA rate (20% or the specified rate, whichever is higher).

Aadhaar-PAN linking

Not currently mandatory for NRIs who are foreign citizens; mandatory for Indian citizens including OCIs holding an Indian passport. Check the current position before filing.

Foreign Tax Credit in Your Country of Residence

Rental income earned in India is typically also taxable in your country of residence as part of worldwide income (for US, Canada, UK, Australia residents on worldwide taxation basis). The DTAA between India and your country of residence governs how double taxation is avoided:

Article 6 of most Indian DTAAs gives the primary right to tax rental income to India (the country where the property is located)
The country of residence taxes the same income but allows a Foreign Tax Credit for Indian tax paid
Effective total tax is usually the higher of the two rates

For the US-specific angle (FBAR, Form 8938, Schedule E depreciation, Section 1250 recapture on future sale), see the US NRI property guide.

Capital Gains — Separate Chapter

Profits from selling Indian property are taxed as capital gains, separately from rental income:

Long-term (held over 24 months): 12.5% under the post-July 2024 regime (or 20% with indexation for property acquired before 23 July 2024, taxpayer's option)
Short-term (held under 24 months): taxed at slab rates, effectively ~30% for most NRIs
TDS at 12.5% on LTCG / 30%+ on STCG deducted by the buyer from sale consideration

Full coverage in the selling property guide and the buying and selling combined guide.

Worked Example

Facts:

NRI owns two flats in India — Flat A kept vacant for personal use; Flat B let out for Rs. 50,000 per month
Flat B: municipal tax paid Rs. 18,000; home loan interest Rs. 3,50,000 for the year
NRI has opted for the old tax regime

Computation for Flat A (self-occupied):

Annual value: Nil (claimed as self-occupied under the two-property rule)
Income from house property: Nil

Computation for Flat B (let-out):

Gross rent: Rs. 50,000 × 12 = Rs. 6,00,000
Less: Municipal tax paid: Rs. 18,000
Net Annual Value: Rs. 5,82,000
Less: Standard deduction @ 30%: Rs. 1,74,600
Less: Interest on home loan: Rs. 3,50,000
Income from house property (Flat B): Rs. 57,400

Total income from house property: Rs. 57,400 (taxed at NRI's slab rate)

TDS impact:

Without Lower TDS Certificate: Tenant deducts 30% + surcharge + cess on Rs. 6,00,000 = ~Rs. 1.9 lakh
With Lower TDS Certificate (say 5%): TDS = Rs. 30,000
Cash-flow difference: Rs. 1.6 lakh held by IT Department for the year — a clear case for obtaining the certificate

Common Pitfalls

Claiming self-occupied status before FY 2019-20 on more than one property — the two-property rule only kicks in from AY 2020-21
Missing the Rs. 2 lakh loss set-off cap — any loss above this from house property cannot reduce your salary or other income in the same year
Opting for the new regime unknowingly — since FY 2023-24, new regime is default; NRIs with significant interest deductions should actively opt for old regime using Form 10-IEA
Not obtaining Lower TDS Certificate — cash flow gets stuck with IT Department
Not filing ITR because "tax is deducted at source" — TDS doesn't replace filing; NRIs with Indian income must file to claim refund and comply with law
Ignoring the property in Indian ITR because income is below slab — house property income must be declared even at nil tax; non-declaration can affect future assessments
Forgetting the tenant's TAN requirement — for rent paid to NRI, tenant needs TAN, not just PAN; this sometimes loses tenants
Not reporting rental income in country of residence — US, UK, Canada, Australia all require worldwide income disclosure on annual tax returns; non-disclosure is worse than the tax itself

Useful Links

Income Tax e-filing portal — incometax.gov.in
TRACES portal (TDS services, Lower TDS Certificate) — tdscpc.gov.in
DTAA text with your country — available on the Income Tax Department website
RBI FEMA rules on rental income repatriation — rbi.org.in

Final Word

Indian property tax rules have become modestly more NRI-friendly over the last decade — the two-property self-occupied allowance is a genuine benefit, the Lower TDS Certificate mechanism is well-established, and the online filing infrastructure (Income Tax portal, TRACES) has matured. The main decisions for NRI property owners today are:

Old regime vs new regime — run the numbers, especially with home loan interest
Self-occupied designation — which of your two properties to tag when you own 3+
Lower TDS Certificate — essential for any meaningful rental income
Tax-efficient use of NRO balance — move to NRE promptly for future-interest tax efficiency (see NRO to NRE transfer)

Engage a CA familiar with NRI taxation in the year of any major event — purchase, sale, first rental, change of residence status. Annual filings of straight rental income can usually be DIY with basic online tools, but the first setup deserves professional input.

For the broader NRI taxation framework (residential status, DTAA basics, other income categories), see the NRI tax in India overview. For the US-specific layer (FBAR, Form 8938, Schedule E, foreign tax credit), see the US NRI property guide.