You're taxed on the rent minus a lot, not on the rent
The gross rent landing in your NRO account is not the figure you pay tax on. Indian rent is taxed under the house-property head, and the computation knocks two things off the rent before any tax is worked out.
First comes a flat 30% standard deduction under Section 24(a). It is taken off the annual value — broadly the rent for the year, after municipal taxes you've actually paid — and it is meant to cover repairs, maintenance and upkeep. You don't need receipts or proof of spending; the 30% is allowed whether or not you spent anything. Second, if you have a loan on the property, the interest on it comes off under Section 24(b).
| What happens to the rent | Section |
|---|---|
| 30% flat standard deduction | 24(a) |
| Home-loan interest set-off | 24(b) |
So on rent of, say, ₹6 lakh a year with no loan, you are taxed on ₹4.2 lakh, not ₹6 lakh — the 30% comes off before your slab rate is even applied. With a loan, the interest reduces it further. This is why the tax you actually owe is usually well below the TDS your tenant took.
Why the home-loan interest set-off is worth getting right
The Section 24(b) interest deduction is where many NRI landlords leave money on the table. For a let-out property, the full year's loan interest is allowed against the rent — there is no ₹2 lakh cap on the interest itself the way there is for a self-occupied home.
The one limit to watch is on the loss. If the interest is large enough that your house-property income goes negative, the loss you can set against your other income in the same year is capped at ₹2 lakh; anything beyond that is carried forward to set against house-property income in later years. So the interest is fully deductible against the rent, but a big loss doesn't all soak up your other Indian income at once.
One more thing decides what you can claim: the tax regime. The deductions described here sit most fully under the old regime. The default new regime treats house-property deductions differently, so the regime you file under affects what the interest set-off is worth — which is part of what gets weighed when the return is prepared.
Your tenant deducts on the gross rent — under Section 195
Because you are a non-resident landlord, the rent is a payment to an NRI, and your tenant has to deduct TDS under Section 195 before paying you — commonly at an effective 31.2% on the gross rent. There is no ₹50,000-a-month floor: the deduction applies whatever the rent is.
The section people confuse this with is Section 194-IB, the simple 5% rule a tenant uses for a resident landlord. It needs no TAN and is the one most tenants have heard of. It does not apply to an NRI landlord at all. For you, the tenant needs a TAN, deducts under Section 195, deposits the tax, files a quarterly Form 27Q against your PAN, and issues you a Form 16A.
The practical consequence is the gap you'll notice: the tenant deducts on the whole rent, but you're taxed only on the rent after the 30% and the loan interest. The TDS is therefore almost always more than your real liability — and that gap is what the return is for.
Recovering the over-deducted TDS through the return
The over-deducted TDS comes back to you as a refund, and the route is your income tax return — there is no separate reclaim form.
When the return is filed, your house-property income is computed properly: rent, less the 30% under Section 24(a), less any loan interest under Section 24(b). Tax is worked out on that net figure at your slab. The TDS the tenant deposited — which you can see in your Form 26AS / AIS and on the Form 16A you were given — is then set against that liability. Because the TDS was on the gross rent and the tax is on the net, the difference is refunded. Where the law allows, the refund carries interest under Section 244A for the period the money was held.
The whole recovery depends on one thing being right: the tenant's Form 27Q must report the TDS against your PAN. If it doesn't, the credit won't appear in your 26AS and the refund can't be claimed until that's corrected — which is why the tenant's filing and your return are really one connected job.
A worked example: a year of rent, and the refund
Meera, an NRI in London, lets a flat in Bengaluru for ₹50,000 a month — ₹6 lakh for the year — with no loan on it. Her tenant, set up correctly under Section 195, deducts an effective 31.2% on the gross rent before paying her: roughly ₹1.87 lakh of TDS across the year, deposited and reported in Form 27Q against Meera's PAN, with a Form 16A issued to her.
When Meera files her return, the rent is taxed under the house-property head, not on the gross. The 30% standard deduction under Section 24(a) takes ₹1.8 lakh off, leaving net rental income of ₹4.2 lakh. Her actual tax on that — at her slab, and after the basic exemption available to her — is far less than the ₹1.87 lakh already deducted. The difference is refunded once the return is processed, with interest under Section 244A where it applies.
If Meera also had a home loan on the flat, the year's interest would come off under Section 24(b) as well, cutting the taxable rent further and increasing the refund. And if she wanted to send the rent sitting in her NRO account abroad, that repatriation would bring in Form 15CA/15CB — a separate step from how the rent itself is taxed.