United States

Indian rental income when you are a US taxpayer

You rent out a property in India but live in the US, and the same rent belongs on both tax returns.

You own a property in India that earns rent, and you are a US person, a citizen, green-card holder or resident. India taxes the rent, and the US taxes its people on worldwide income, so it taxes the rent too. You cannot use the treaty to escape the US tax, because its saving clause lets the US tax you as if the treaty did not exist; only a foreign tax credit helps. And the US computes the rent on stricter rules, with a mandatory depreciation claim that comes back to bite when you sell. Here is how the two sides fit.

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Last reviewed: 26 July 20267 min readReviewed by Preetesh Maloo, CA

The short answer

Your Indian rent is taxed in India, after a flat 30% standard deduction, with the tenant deducting TDS under Section 195 on the gross rent. The US taxes it too, and the treaty's saving clause means you cannot use the treaty to avoid that, only a foreign tax credit for the India tax helps. The US computes the rent on its own rules, actual expenses plus mandatory depreciation of the building over 30 years, and that depreciation is recaptured and taxed up to 25% when you sell, whether or not you claimed it. Because the two countries figure the rent so differently, the India tax often does not cover the US tax, so a US top-up remains.

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Related situations

The India side

In India the rent is income from house property, taxed after a flat 30% standard deduction under Section 24, which you get whatever you actually spent, and after home-loan interest, 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, India has the primary right to tax income from Indian property. But for a US person that is only half the story, because the treaty does not stop the US taxing the same rent, as the next section explains.

The US side, and the saving clause

The US taxes its citizens and residents on worldwide income, so the Indian rent goes on your US return, on Schedule E, computed in dollars on US rules. Critically, the treaty's saving clause lets the US tax you as if the treaty had not come into effect, so you cannot invoke the treaty to reduce or exempt the rent; your only relief is a foreign tax credit for the India tax, claimed on Form 1116.

The US computation is stricter than India's in two ways. There is no flat 30% deduction, only actual expenses, and on top of that the US requires you to depreciate the building, a foreign residential rental is written off on a straight-line basis over 30 years, and this is mandatory. The sting comes on sale: that depreciation is recaptured and taxed at up to 25%, and your basis is reduced by the depreciation allowed whether or not you actually claimed it, so skipping it does not help. Because the US taxable rent, after actual expenses and depreciation, usually differs from India's flat-30% figure, the India tax often does not fully cover the US tax, and a US top-up remains.

The credit, the losses, and the paperwork

The foreign tax credit is what prevents most of the double tax, but it only credits the India tax against the US tax on that same rent, so where the US taxes more, you pay the difference. If your Indian property runs at a loss for US purposes, US passive-loss rules can suspend it, and the allowance that lets some landlords use a rental loss phases out entirely once income is high, so a higher earner may not get the loss currently.

The practical work is India-side and record-keeping: file the Indian return with the 30% deduction and recover the over-deducted TDS, and keep a clear record of the India tax paid, in dollars, for the credit, along with the building value for the US depreciation schedule. A practising CA files the Indian side, reclaims the gross-basis TDS, and hands your US preparer the India-tax-paid detail for Form 1116, so the credit is claimed and the Indian tax is not left stranded.

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 provide the credit paperwork
We give your US preparer the India-tax-paid certificate and figures for the Form 1116 foreign tax credit.
4
We supply the depreciation basis
We provide the building cost and value so your US depreciation schedule, and the recapture on a later sale, are set up correctly.

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)
The building's cost, for US depreciation
Your PAN and US 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
The treaty saving clause keeps the US taxing the rent; relief is a foreign tax credit (Form 1116), not a treaty exemption
The US requires mandatory depreciation of a foreign rental (30-year straight-line), recaptured at up to 25% on sale
The two countries compute the rent differently, so the India tax often leaves a US top-up

Frequently asked questions

Common questions

Usually yes. The US taxes the rent too, and the treaty saving clause means you cannot use the treaty to avoid it, only a foreign tax credit for the India tax. Because the US computes the rent more strictly, with mandatory depreciation, a top-up commonly remains.

Yes. A foreign residential rental must be depreciated straight-line over 30 years, and it is mandatory. Your basis is reduced by the depreciation allowed whether or not you claimed it, and it is recaptured at up to 25% when you sell.

Sometimes, but US passive-loss rules can suspend it, and the allowance that lets some landlords use a rental loss phases out at higher income, so a higher earner may not get it currently.

No. Section 195 TDS is on the gross rent, before your 30% deduction, so it over-deducts. You recover 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.

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Indian rent to report on your US return?

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