Germany

Indian rental income when you are a German tax resident

You rent out a property in India but live in Germany, and you expect to be taxed twice. On rent, Germany works differently.

You own a property in India that earns rent, and you are a tax resident of Germany. You assume, as with most countries, that Germany taxes the rent too and gives you a credit for the India tax, leaving a top-up. For rental income the India-Germany treaty actually works the other way, and more kindly: Germany exempts the rent and only uses it to set the rate on your German income. Knowing that changes what you owe and what paperwork your German accountant needs.

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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

Your Indian rent is taxed in India, after a flat 30% standard deduction and home-loan interest, with the tenant deducting TDS under Section 195 on the gross rent. In Germany the treaty does not tax the rent and give a credit, as most countries do. Instead it exempts your Indian rental income and uses it only to set the tax rate on your German income, which is called exemption with progression. So Germany does not tax the rent itself; India's tax is the only real tax on it, and the German effect is just a slightly higher rate on your other German income.

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Related situations

The India side

In India the rent is income from house property. You are taxed after a flat 30% standard deduction under Section 24, which you get whatever you actually spent, and after home-loan interest, with the balance at slab rates. As a non-resident landlord, your tenant must deduct TDS under Section 195 on the gross rent, which over-deducts against your real Indian tax, so you recover the excess by filing an Indian return or reduce it up front with a lower-deduction certificate.

Under the treaty, Article 6 gives India, where the property sits, the first right to tax the rent. That much is like every other country. What differs is what Germany then does, and it is unusually favourable.

Why Germany does not tax the rent

Most countries tax the foreign rent as well and give a credit for the India tax, so a resident pays the higher of the two. Germany does not, for rental income. Under Article 23 of the India-Germany treaty, Germany relieves this income by exemption, not credit, so the Indian rent is exempt from German income tax.

There is one string attached, called exemption with progression. Germany takes the exempt Indian rent into account only to work out the tax rate that applies to your German income, then applies that slightly higher rate to your German income alone, not to the Indian rent. So the rent itself bears no German tax; it just nudges up the rate on everything else you earn in Germany. For most people that progression effect is small, and the practical result is that India's slab tax on the rent is the only real tax you pay on it.

What that means for you

The upshot is simpler and usually cheaper than you feared: get the Indian side right, and there is no separate German tax on the rent to worry about, only a modest rate effect. Germany does compute a shadow figure for the rent on its own rules, actual costs and building depreciation rather than India's flat 30%, but that only feeds the progression rate, not an actual German tax bill.

So the work that matters is the Indian return: claiming the 30% deduction and interest, recovering the over-deducted TDS, and having a clean record of the Indian tax and the rental figure for your German accountant to slot into the progression calculation. A practising CA files the Indian side, reclaims the TDS, and gives your German accountant the exempt-income figure they need, so nothing is double-counted and nothing is missed.

What's involved

What the CA actually does

1
We file the Indian return
We compute the rent after the 30% deduction and interest and file to recover the gross-basis TDS the tenant deducted under Section 195.
2
We cut the over-deduction
We get a lower-deduction certificate where the cash tie-up matters, so the tenant withholds closer to your real Indian tax.
3
We give your German accountant the figure
We hand over the exempt Indian rental income and the India tax paid, so the progression calculation on your German return is right.
4
We keep it from being double-counted
We make sure the rent is treated as exempt-with-progression in Germany, not wrongly taxed again with a credit.

What to have ready

Documents you'll typically need

The Indian rental income and any home-loan interest
The TDS the tenant deducted (Form 16A)
Your other German income, for the progression rate
Your PAN and German tax details

References on this page

India: house-property income after a flat 30% deduction (Section 24) and interest; TDS on gross rent under Section 195
India-Germany treaty Article 6 gives India the first right to tax Indian property income
Treaty Article 23 relieves the German resident by exemption with progression, not by credit, for rental income
So Germany does not tax the rent; it only raises the rate on the resident's German income

Frequently asked questions

Common questions

Not directly. The treaty relieves rental income by exemption, not credit, so Germany does not tax the rent itself. It only uses the rent to set the tax rate on your German income (exemption with progression), so India's tax is the only real tax on the rent.

In substance, yes. India taxes the rent at slab after the 30% deduction, and Germany exempts it, applying only a small progression effect to your German income. There is no separate German tax on the rent to credit or top up.

Germany leaves the Indian rent untaxed but counts it when working out your tax rate, then applies that slightly higher rate to your German income only. The rent bears no German tax; it just raises the rate on the rest.

Usually yes. Section 195 TDS is on the gross rent, before your 30% deduction and interest, so it over-deducts. You reclaim the excess by filing an Indian return, or reduce it up front with a lower-deduction certificate.

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

House property standard deduction and interest cap

Right now: 30% standard deduction on net annual value

Where it works differently

The property is self-occupied: Interest deduction is capped at Rs 2 lakh under s.24(b).; Second proviso to s.24(b).
The property is let out: Full interest is deductible against rent, but the resulting LOSS that can be set against other heads is capped at Rs 2 lakh a year, with an 8-year carry-forward.; s.71(3A), from AY 2018-19. Frequently missed by leveraged NRI landlords.
The new tax regime applies: No set-off of house-property loss against other income at all.; s.115BAC restriction. NRIs are in the new regime by default.

Commonly got wrong

Full home-loan interest can be set against salary. Capped at Rs 2 lakh in the old regime, and disallowed entirely in the new regime.In the old regime you may deduct home-loan interest, capped at Rs 2 lakh for a self-occupied property, with the set-off against other income capped at Rs 2 lakh a year. In the new regime, which is the default, there is no set-off at all.

TDS on rent paid to an NRI landlord

Right now: 30% plus surcharge and cess under s.195

Where it works differently

The tenant applies s.194-I (10%) or s.194-IB (5%): Wrong section. Both are resident-payee provisions; rent to a non-resident falls under s.195.; The tenant becomes an assessee-in-default under s.201 for the shortfall.
There is no threshold: s.195 has no minimum. Even Rs 8,000 a month of rent attracts deduction.; Unlike 194-I (Rs 2.4 lakh) and 194-IB (Rs 50,000 a month).
The landlord obtains a Form 13 certificate: The AO can certify a much lower rate reflecting the 30% standard deduction and interest, often into single digits.; s.197. This is the standard fix for NRI landlords.
The tenant is an individual with no TAN: They must still obtain a TAN to deduct under s.195. This is the practical reason NRI landlords lose tenants.; s.203A.

Commonly got wrong

Tenants deduct 10% TDS on rent under s.194-I. That applies to resident landlords. For an NRI landlord the section is 195 at 30% plus surcharge and cess.If your landlord is an NRI you deduct under section 195 at 30% plus surcharge and cess, you need a TAN, and there is no minimum threshold. The landlord can lower it with a Form 13 certificate.

If this matched your situation, these go further

NRE and NRO interest when you are a German tax resident Selling Indian property while you are a German tax resident Proving the tax you paid in India, to claim a foreign tax credit abroad NRI ITR filing (we file for you)DTAA TDS recovery Form 13 lower-TDS certificate (property sale)Rental income TDS calculator Form 10F generator

Indian rent and a German tax return?

Send us the rent and the TDS. A practising CA will file the Indian side and give your German accountant the exempt-income figure on a free call, no obligation.

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