Indian rental income when you are a US taxpayer

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 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 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.