Deductions Allowed on Rental Income for NRIs in India: A Practical & Compliance-Focused Guide

Deductions Allowed on Rental Income for NRIs in India: A Practical & Compliance-Focused Guide

For NRIs living in the USA, UK, Canada, UAE, Australia, and Europe, rental income from property in India often comes with a harsh surprise—high tax deductions at source and confusion about what can actually be claimed as deductions.

Many NRIs assume:

• Every expense can be deducted

• TDS deducted by tenants is the final tax

• Filing returns is optional if tax is already deducted

In reality, only specific deductions are allowed on rental income, and misunderstanding them often leads to over-taxation, notices, or long-term compliance issues.

This guide explains deductions allowed on rental income for NRIs, based on Indian tax law and real-world NRI experiences, so you can clearly understand:

• What is allowed

• What is not allowed

• Where NRIs commonly make mistakes

• How to stay compliant without overclaiming

Why Understanding Deductions Is Critical for NRIs

According to Income Tax Department data trends:

• A significant number of NRI tax adjustments arise from incorrect deduction claims

• Automated scrutiny systems frequently flag mismatch between TDS and declared deductions

• Rental income cases are among the most audited NRI income categories

From ground-level experience:

NRIs often lose legitimate tax benefits simply because they rely on assumptions rather than rules.

At the same time, over-claiming deductions can trigger scrutiny, penalties, and prolonged correspondence—especially difficult when managing matters from abroad.

How Rental Income Is Taxed for NRIs (Quick Context)

Rental income from property in India is taxed under the head:
“Income from House Property”

For NRIs:

• Tax applies regardless of where they live

• Income is taxable because the property is located in India

• Deductions are strictly defined under Indian law

Understanding deductions starts with understanding this structure.

Primary Deduction Allowed: Standard Deduction (Section 24(a))

What Is the Standard Deduction?

Under Section 24(a) of the Income Tax Act:

• NRIs are allowed a flat 30% deduction on Net Annual Value

• This deduction is automatic

• No bills, invoices, or proofs are required

What This Deduction Covers

The 30% deduction is meant to account for:

• Repairs and maintenance

• Painting and wear & tear

• Minor renovations

• General upkeep

Even if you spend nothing, the deduction is still allowed.

Why This Matters for NRIs

Many NRIs try to separately claim:

• Maintenance payments

• Society charges

• Repair expenses

This is not permitted, because the 30% standard deduction already accounts for these.

📊 Tax audit data shows incorrect expense claims are a common trigger for adjustment in NRI returns.

Example

This ₹5,88,000 becomes the base for further deductions, if any.

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Second Major Deduction: Interest on Home Loan (Section 24(b))

What Is Allowed?

NRIs can claim deduction for:

• Interest paid on home loan

• Loan must be taken for purchase, construction, repair, or reconstruction of the rented property

There is no upper limit on interest deduction for a rented property.

Important Conditions

• Loan must be from a recognized financial institution or bank

• Interest certificate must be available

• Property must actually be rented (or deemed rented)

Ground Reality for NRIs

From real cases:

• Many NRIs forget to collect annual interest certificates

• Some loans are in joint names, creating allocation confusion

• In inherited properties, loan linkage must be clear

Errors here often lead to:

• Partial disallowance

• Clarification notices

• Delays in processing returns

Example

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What Deductions Are NOT Allowed (Common Misunderstandings)

This is where many NRIs unintentionally go wrong.

Expenses NOT Separately Deductible

• Society maintenance charges

• Property management fees

• Repairs & renovations

• Brokerage paid to agents

• Travel costs to India

• Insurance premiums (other than specific cases)

These are assumed to be covered under the 30% standard deduction.

Why Overclaiming Is Risky

• Automated systems compare rental income vs deductions

• Excessive claims are flagged easily

• NRIs face difficulty responding quickly due to time zones and distance

Neutral, compliant reporting is always safer.

Municipal Taxes: Where They Fit

Are Property Taxes Deductible?

Yes—but with a condition.

Municipal taxes:

• Are allowed to be deducted before calculating Net Annual Value

• Must be actually paid during the year

• Must be paid by the owner (not tenant)

Documentation Matters

• Receipts should be preserved

• Late or unpaid taxes cannot be claimed

Joint Ownership & Deduction Allocation

If the property is jointly owned:

• Rental income is divided based on ownership share

• Deductions are also divided in the same ratio

Common Risk

One co-owner claims full deduction → mismatch in records → scrutiny.

Clear allocation is essential, especially when co-owners live in different countries.

Inherited Property: Special Attention Needed

In inherited properties:

• Standard deduction still applies

• Home loan interest applies only if loan exists in owner’s name

• Ownership documentation must be clear

NRIs often inherit properties with:

• Informal family arrangements

• Old loans

• Missing paperwork

These need careful handling before deductions are claimed.

TDS vs Deductions: Why NRIs Confuse the Two

A frequent misunderstanding:

“Since 30% TDS is deducted, deductions are already adjusted.”

This is incorrect.

• TDS is a collection mechanism

• Deductions are applied during tax computation

• Excess TDS can only be adjusted or refunded after filing return

Failure to file means:

• Over-taxation

• Loss of cash flow

• Weak compliance history

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DTAA & Deductions: How They Interact

India has DTAA agreements with:

• USA

• UK

• Canada

• UAE

• Australia

• European countries

DTAA allows:

• Credit for Indian taxes paid

• Avoidance of double taxation

However:

• Deductions must first be claimed correctly under Indian law

• DTAA does not expand or override Indian deductions

• Incorrect deduction claims can affect treaty credit abroad

Practical Deduction Checklist for NRIs

• Apply standard 30% deduction correctly

• Claim only eligible home loan interest

• Deduct municipal taxes only if paid

• Avoid claiming actual maintenance expenses

• Allocate deductions correctly in joint ownership

• Maintain documents for at least 6 years

• File Indian ITR every year

Frequently Asked Questions (FAQs)

Can NRIs claim society maintenance charges separately?

No. These are covered under the 30% standard deduction.

Is home loan principal repayment deductible?

Principal repayment benefits are limited and subject to conditions; interest deduction is more commonly applicable for rental income.

Can deductions reduce TDS deducted by tenant?

No. Deductions are applied while filing return, not during TDS deduction—unless a lower TDS certificate is obtained.

Do deductions apply if property is inherited?

Yes, standard deduction applies; loan-related deductions depend on facts.

Why Structured Guidance Matters for NRIs

Deductions on rental income may look simple, but:

• Small mistakes create long-term exposure

• Over-claiming increases scrutiny

• Under-claiming leads to unnecessary tax loss

For NRIs, distance amplifies every compliance gap.

Conclusion: NRIWAY’s Role as a Professional Compliance Concierge

Understanding deductions allowed on rental income is not about aggressive tax saving—it is about accurate, defensible, and compliant reporting.

NRIWAY supports NRIs by providing structured oversight, documentation coordination, and clarity around property-linked tax obligations—without exaggerated claims or legal guarantees. Our role is to help NRIs make informed decisions and stay aligned with India’s evolving compliance landscape.

For NRIs managing property from thousands of miles away, clarity is protection—and structure is peace of mind.

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