A flat in Bengaluru is let at ₹60,000 a month. The owner moved to Dubai three years ago. The tenant, who has rented before and knows the drill, deducts 10% and pays over ₹54,000.
Both of them have a problem. The tenant has under-deducted by roughly ₹1,27,000 a year and is personally liable for it. And once that is corrected, the owner will have ₹2,24,640 a year deducted from rent on which the real tax is closer to ₹5,000.
Neither figure is a penalty. Both follow from the sections, and both are avoidable.
Rent is one of the best-known TDS entries. A tenant deducts 10% under Section 194-I of the 1961 Act — Section 393(1) of the Income-tax Act 2025 from tax year 2026-27 — above a threshold that is ₹6 lakh a year for FY 2025-26 onwards. That is the rule almost everyone has in mind.
It applies when the landlord is resident.
When the landlord is a non-resident, Section 194-I is not the operative provision at all. The payment falls under Section 195 — for tax year 2026-27 onwards, the non-resident table in Section 393(2) of the 2025 Act — which requires deduction from any sum chargeable to tax paid to a non-resident.
Two consequences follow, and they are the whole of the problem:
- No threshold. Section 195 has none. Deduction is due on the first rupee of rent. The ₹6 lakh comfort does not exist here.
- A different rate. Deduction is at the rates in force for a non-resident. House-property income of a non-resident individual is taxed at slab rates, and the tenant has no way of knowing the landlord's total income, so deduction is made at the top of the scale: 30% plus the 4% health and education cess — 31.2%, with surcharge on top where the rent is large enough to attract it.
This is the same structural trap as a property sale, where the buyer deducts on the full consideration rather than the gain. The mechanism differs; the cash-flow damage is identical.
The rent is taxed as income from house property — Sections 22 to 24 of the 1961 Act, Sections 20 to 22 of the 2025 Act. Three things come off, in order:
- Municipal taxes actually paid by you as owner.
- A flat 30% standard deduction on what is left. It is given instead of every actual expense — maintenance, agent's commission, repairs, society charges. Whatever you really spent is irrelevant.
- Interest on money borrowed for the property.
On the Bengaluru flat, with ₹10,000 of municipal tax and no loan:
| |
|---|
| Gross annual rent | ₹7,20,000 |
| Less: municipal taxes paid by owner | (₹10,000) |
| Net annual value | ₹7,10,000 |
| Less: 30% standard deduction | (₹2,13,000) |
| Income from house property | ₹4,97,000 |
With no other Indian income, under the default regime the first ₹4 lakh is nil and the balance of ₹97,000 is taxed at 5% — about ₹5,040 including cess.
Against that, ₹2,24,640 has been deducted. Roughly forty-four times the tax.
One caution on the arithmetic, because it is quoted carelessly everywhere: the ₹60,000 rebate under Section 156 that takes income up to ₹12 lakh to nil is for a resident individual. It is not available to you. Your tax genuinely starts above the ₹4 lakh band — it is simply nowhere near 31.2% of gross rent.
Section 197 of the 1961 Act — Section 395(1) of the 2025 Act from tax year 2026-27 — lets the recipient apply for a lower or nil deduction certificate. The application is Form 13 under the 1962 Rules and Form 128 under the Income-tax Rules 2026.
Four things about it matter more than the form itself:
- You apply, not the tenant. The tenant cannot fix this from their side, and a tenant who simply deducts less because you asked them to is the one who carries the liability.
- It must be in place before the rent is paid. There is no retrospective certificate. Rent already paid at 31.2% is recoverable only by filing a return.
- It names a rate, and the tenant must follow it. The Assessing Officer issues the certificate specifying what the tenant deducts. That is what makes it safe for the tenant to deduct less.
- It expires with the tax year. A tenancy running for five years needs five applications, each before the first rent of its year. This is the part people miss, and the reason a certificate obtained once is often found to have lapsed two years later with full-rate deduction running in the background.
Worth knowing, because a tenant who discovers this late often wants to renegotiate — or walk.
- A TAN. Deducting under the non-resident provision requires one, and an individual tenant renting a flat is not excused. The relaxation that came in for deductions from 1 October 2026 is written for a resident individual or HUF buying immovable property from a non-resident. Nothing in it reaches rent.
- Monthly deposit, by the 7th of the following month.
- A quarterly non-resident TDS return — Form 27Q under the old rules, Form 144 under the Income-tax Rules 2026 — and a deduction certificate issued to you.
- A higher rate if you have no PAN, under Section 206AA of the 1961 Act, Section 397(2) of the 2025 Act.
- Personal liability for getting it wrong. Under-deduction makes the tenant an assessee-in-default under Section 201 — Section 398 of the 2025 Act — for the shortfall plus interest.
The practical reading: a tenant paying rent to an NRI is taking on a compliance obligation most individual tenants have never had. Telling them about it at the start, with the certificate already applied for, is the difference between a letting that runs quietly and one that produces a demand two years later.
The rent is Indian income and lands in an NRO account. Taking it abroad is a separate step with its own certificate: what used to be Forms 15CA and 15CB, and under the Income-tax Rules 2026 is Forms 145 and 146. Whether a CA certificate is needed at all depends on which part of the form applies and whether the sum is taxable — see when you actually need a CA certificate, and the full repatriation route for the sequence.
Rent is also subject to the USD 1 million a year limit on remittances out of NRO balances, which is cumulative across everything you send in a financial year — what that limit covers.
- Before the tenancy starts, establish that you are non-resident for the year and that Section 195 applies. Residence is a computation, not a status you carry.
- Apply in Form 128 for a lower-deduction certificate, with the house-property computation and your other Indian income.
- Tell the tenant what the certificate says, in writing, and confirm they hold a TAN.
- Diarise the renewal for the start of the next tax year.
- File your Indian return — the certificate reduces the deduction, it does not remove the filing.
- Repatriate separately, with Forms 145/146 where required.
Steps 1 and 2 are the ones with a deadline attached. Everything after them is recoverable; those two, once the rent has been paid, are not.