NRI Rental Income: The Right Account, TDS Rules, and Repatriation

You own a flat in Pune. You moved to the US four years ago. Your tenant pays Rs 35,000 per month, and you have been asking your brother to collect the rent and deposit it in your old savings account, which you meant to convert to an NRO account but never got around to. Every month, the income lands in a resident savings account you are no longer entitled to operate as an NRI.

This is a FEMA violation, and it is extremely common. The fix is not complicated, but it requires understanding which account the income must flow into, who owes TDS and how much, and how to get the money back to your foreign account when you need it.

The 30-second answer: Rental income from Indian property must flow into your NRO account, not a resident account and not an NRE account. Your tenant must deduct 30% TDS under Section 195 (most individual tenants don't, which creates a problem). The standard deduction of 30% of net annual value under Section 24(a) reduces your taxable rental income. You can repatriate up to USD 1 million per year from NRO after paying taxes, with a CA's Form 15CB and your Form 15CA filed online. If you have an existing resident savings account receiving rent, convert it to NRO immediately and stop the deposit there going forward. The longer you wait, the more complex the regularisation becomes.

The Account Rule: NRO, Not NRE, Not Resident Savings

Under FEMA regulations, income that originates in India must be held in an NRO account if the account holder is a non-resident. Rental income from Indian property is Indian-sourced income. It must flow into an NRO account.

NRE accounts hold funds that originated abroad (foreign earnings, savings remitted from outside India). They are freely repatriable and earn tax-free interest. Depositing Indian rental income into an NRE account violates FEMA. The income's character as Indian-source income does not change simply because you deposit it in a different account type.

Resident savings accounts should have been converted to NRO accounts when you became an NRI. RBI requires this. If you have been collecting rent into a resident savings account since you moved abroad, the account should be converted to NRO immediately. This is not a complicated process: submit the NRO conversion request at your bank branch with your NRI documentation (passport, visa, foreign address proof). The account number typically stays the same.

Once in your NRO account, the rental income is subject to Indian tax. Interest earned on the NRO balance is also taxable in India at 30% TDS. This is the tax cost of holding Indian-source income.

How TDS Works for NRI Rental Income

Section 195 is the applicable TDS provision for rent paid to non-residents. The key points:

• Applies to any payment to a non-resident that is chargeable to tax in India
• TDS rate: 30% (plus surcharge and health and education cess). Effective rate including cess: approximately 31.2% for most NRI landlords in 2026
• No threshold: Even Rs 1 in rent requires TDS. Section 194-I (which applies to resident landlords and has a Rs 2,40,000 annual threshold) does not apply to NRI landlords
• The tenant is responsible for deducting and depositing TDS
• TDS must be deposited by the tenant by the 7th of the following month (or 30 April for March)
• Tenant must issue Form 16A (TDS certificate) to the NRI landlord within 15 days of the due date for filing TDS returns

The tenant must also obtain a TAN (Tax Deduction Account Number) to deduct and deposit TDS. Many individual tenants have no TAN and are unaware of the requirement. This is addressed in a separate section below.

Collecting Your Form 16A

Form 16A is your proof of TDS deducted. Without it, you cannot claim credit for TDS already paid by the tenant when filing your ITR. Without ITR showing TDS credit, repatriation becomes more complex.

To receive Form 16A from your tenant:

1. The tenant must have a TAN
2. The tenant must file quarterly TDS returns (Form 26Q or 27Q for non-resident payees)
3. Form 16A is generated from TRACES (TDS Reconciliation Analysis and Correction Enabling System) and should be given to you quarterly

In practice, ask your tenant to share their TAN at the start of the lease. If they do not have one, ask them to register for one (it is a simple online process at the TIN NSDL portal). Make TAN holding a lease condition for new tenants.

You can also verify TDS deposits on your own PAN via the TRACES portal or via your ITR Form 26AS (which shows all TDS attributed to your PAN). If TDS shows in 26AS, you are entitled to credit it in your return even if Form 16A has not been formally issued.

The Deductions That Reduce Your Tax Burden

Rental income in India is taxable under the head "Income from House Property", not as business income. The computation is specific:

Step 1: Gross Annual Value (GAV) The higher of: actual rent received, or the fair market rent (typically taken as actual rent for NRI tax purposes in most cases).

Step 2: Net Annual Value (NAV) NAV = GAV minus municipal taxes paid for the year.

Step 3: Deductions under Section 24

• Standard deduction under Section 24(a): 30% of NAV, allowable regardless of actual expenditure. This covers maintenance, insurance, repairs.
• Interest on home loan under Section 24(b): If you have a home loan on the property, the full interest paid is deductible (no upper limit for let-out property, unlike the Rs 2 lakh limit for self-occupied property).

Step 4: Taxable income NAV minus deductions = Taxable income from house property.

This taxable income is added to your other India-source income (NRO interest, dividends, capital gains) to arrive at total Indian taxable income, taxed at applicable slab rates (or 30% flat for NRIs without the basic exemption benefit under Section 115-I, though NRIs can opt into the normal slab rates under Section 115-I if beneficial).

Worked Example: Monthly Rent of Rs 35,000

Nisha owns a 2BHK in Bengaluru. Her tenant pays Rs 35,000/month. She has no home loan. Municipal taxes are Rs 8,000 per year.

Gross Annual Value: Rs 35,000 x 12 = Rs 4,20,000

Net Annual Value: Rs 4,20,000 minus Rs 8,000 = Rs 4,12,000

Standard Deduction (30%): Rs 1,23,600

Taxable income from house property: Rs 4,12,000 minus Rs 1,23,600 = Rs 2,88,400

Tax at 30% (Section 115E, NRI rate): Rs 86,520 approximately (plus cess = approximately Rs 90,000)

TDS tenant should have deducted at 31.2%: Rs 35,000 x 12 x 31.2% = Rs 1,31,040

Note: The TDS deducted (Rs 1,31,040) exceeds the actual tax liability (approximately Rs 90,000). The excess Rs 41,040 is refundable via ITR filing. This is a common situation for NRI landlords.

Nisha should file her Indian ITR annually to claim this refund. TDS refund process for NRIs covers the mechanics.

When the Tenant Does Not Deduct TDS

This is the most common compliance problem in NRI rental situations. Individual tenants often do not know they are required to deduct TDS when paying rent to an NRI.

The consequences:

• The tenant is technically in default under Section 195 and is treated as the "assessee in default" by the Income Tax Department
• The NRI landlord still owes the tax. The fact that the tenant failed to deduct does not eliminate the tax liability
• The tenant may receive notices from the IT Department and can be held liable for the undeducted TDS amount plus interest

For the NRI:

• Pay advance tax if TDS is not being deducted. Advance tax is due in four instalments (15 June, 15 September, 15 December, 15 March) based on estimated income
• File ITR showing income from house property and pay the balance tax
• Maintain a record of actual rent received (bank statements showing NRO credits) as supporting documentation

For new tenants going forward, include a TDS clause in the lease agreement explicitly stating that the tenant is required to deduct TDS under Section 195 and provide TAN and Form 16A.

Holding Rental Income in NRO: FD vs Sweep-In

Once rental income is in your NRO account, you have choices about how to hold it while earning returns.

NRO Savings Account: Current interest rates are typically 2.7-3.5%. Simple, liquid. TDS at 30% on interest.

NRO Fixed Deposit: Rates vary from 5.5-7.25% depending on the bank and tenure. TDS at 30% on interest income. Locked for the chosen tenure, though premature withdrawal is possible with a penalty.

Sweep-in FD (Auto-sweep): Your NRO savings account balance above a threshold (say Rs 1,00,000) automatically sweeps into an FD overnight and sweeps back when needed. You earn FD rates on the swept portion without manually creating FDs. This is useful for rental income that accumulates over months before you need it for repatriation.

For NRI FD strategies, see NRI fixed deposit laddering.

Repatriating Rental Income: 15CA/15CB and the USD 1 Million Limit

Under the RBI's Liberalised Remittance Scheme and FEMA, NRIs can repatriate up to USD 1 million (approximately Rs 8.3 crores at current rates) per financial year from their NRO account, provided taxes have been paid.

The process for repatriation of rental income:

Step 1: Pay all dues. Ensure TDS has been deposited (either by tenant or by you via advance tax), and your ITR for the relevant year has been filed.

Step 2: Get CA certificate (Form 15CB). A CA issues Form 15CB certifying the nature of the remittance, that it represents income on which tax has been paid or is not chargeable, and the applicable tax provisions. The CA needs your ITR, Form 26AS, rental agreements, bank statements, and property details.

Step 3: File Form 15CA. This is an online declaration filed by you (or your CA) on the Income Tax portal before the remittance. It incorporates details from Form 15CB. For remittances below Rs 5,00,000 and certain exempt categories, Form 15CA Part A suffices without Form 15CB.

Step 4: Submit to bank. Provide the bank with the Form 15CA acknowledgement and Form 15CB. The bank processes the foreign exchange transfer to your overseas account.

For the full repatriation mechanics, see NRO repatriation process and NRO to NRE transfer if you want to move funds into your tax-free NRE account first.

The Property Manager's Role and NRO Mandate

If you use a property manager (a local agency or individual who handles tenant relations, maintenance, rent collection), they typically have mandate access to your NRO account to receive payments and pay expenses.

Setting up a mandate (also called a third-party operation mandate) allows the property manager to:

• Receive rent credits into the NRO account
• Pay maintenance charges, society fees, and repair costs from the NRO balance
• Provide you with periodic statements

The mandate does not give the property manager the right to transfer funds abroad or initiate repatriation. Those transactions require your authorisation. For properties managed under a Power of Attorney, the POA holder can have broader authority. See power of attorney for NRI banking and property for the legal framework.

Ensure your property manager's mandate is formally documented with the bank rather than operating informally through your login credentials. Informal sharing of credentials violates the bank's terms and creates liability for both parties.

What to Do If Rental Income Has Been Going to the Wrong Account

If rental income has been depositing into a resident savings account, or worse, into an NRE account, the regularisation steps are:

1. Stop further deposits to the wrong account immediately
2. Convert the resident savings account to NRO if you have not already done so
3. Transfer the accumulated balance from the NRE account (if misdirected there) to your NRO account. Banks can do this internal transfer on request.
4. File ITR for the years in which rental income was received, correctly disclosing it under "Income from House Property"
5. Pay any tax due with interest under Section 234A/234B if returns were not filed or tax was not paid on time
6. Consult a CA if the amounts are material or if the non-compliance spans multiple years, as a CA-supervised voluntary disclosure is treated more favourably than a notice-driven correction

The NRI bank account freeze guide covers what happens if banks or tax authorities flag non-compliant account usage.

The Closing Read

Rental income from Indian property is one of the most administratively demanding income types for NRIs, not because the rules are complex in principle, but because the practical chain (tenant compliance, TDS collection, Form 16A, ITR filing, Form 15CA/15CB, repatriation) involves multiple parties who may not know what they are supposed to do.

The NRO account is your central holding point. Everything flows through it: income in, taxes out, documentation assembled, repatriation eventually initiated.

For most NRI property owners, the two most important actions are: getting the tenant to register for a TAN and start deducting TDS, and filing an Indian ITR annually even if TDS already covers the liability (because the refund is usually substantial and the ITR creates the clean paper trail that repatriation requires).

A CA in India who specialises in NRI taxation, not a general practice accountant, is worth the fee if your rental income exceeds Rs 3,00,000 per year.

Cross-References

• NRE vs NRO vs FCNR: Which Account for What
• NRO Repatriation Process
• NRO to NRE Transfer
• Convert a Resident Savings Account to NRO
• TDS for NRIs and How to Claim Refunds
• Reducing NRO TDS Through DTAA Claims
• NRI Fixed Deposit Laddering Strategy
• Power of Attorney for NRI Banking and Property
• NRI Bank Account Freeze: Reasons and Fixes
• FATCA/CRS Self-Certification for NRI Bank Accounts
• NRI Tax Calendar 2026: Key Dates
• NRI Account Nomination and Succession Planning
• Joint Accounts and Mandates for NRIs

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This guide reflects rules as of May 2026. Tax rates, TDS provisions, and repatriation limits are subject to budget amendments. Consult a CA qualified in NRI taxation before acting on the information in this guide.