How Is Foreign Rental Income Taxed in India? A Complete Guide for Returning NRIs

As more Non-Resident Indians (NRIs) invest in overseas properties and later return to India, understanding how foreign rental income is taxed in India becomes crucial. If you're planning to relocate to India and continue earning rental income from property abroad, here's what you need to know about NRI taxation, deductions, and residency status.

Will Foreign Rental Income Be Taxed in India?

Yes — but only under certain conditions. India's taxation laws consider your residency status when determining whether overseas income is taxable.

RNOR Status: No Tax on Foreign Rental Income

If you return to India and qualify as a Resident but Not Ordinarily Resident (RNOR) under Indian tax law, your foreign rental income will not be taxed in India. This is because RNORs are only taxed on income that is either received in India or arises from a business or profession controlled from India.

Example: If you’re earning rent from an Australian property and qualify as RNOR, that income is considered foreign-sourced and is not taxable in India during the RNOR period.

Related: Golden tax window for NRIs: What RNOR means and how to use it

What Happens When You Become a Resident and Ordinarily Resident (ROR)?

Once your status changes to Resident and Ordinarily Resident (ROR) — typically after spending more than 2 years in India — your global income becomes taxable.

This means:

Rental income from your overseas property must be declared in your Indian income tax return.

It will be taxed under the head "Income from House Property."

Can You Claim Deductions on Foreign Mortgage Interest?

Yes. According to Indian Income Tax Act, you can claim a deduction on interest paid on foreign home loans, provided the following conditions are met:

The interest is not taxable in India.

No tax is deducted at source (TDS) in India on the foreign interest.

The loan is taken from a non-resident lender and paid outside India.

Since the interest isn’t received or deemed to be received in India, and the loan is linked to a foreign property, it does not trigger taxability under Indian law. Therefore, the interest can be deducted from rental income.

Also Read: Do NRIs have to pay tax on mutual fund gains in India?

What About FEMA Regulations on Foreign Rental Income?

Under the Foreign Exchange Management Act (FEMA), there is no obligation to repatriate rental income from overseas properties to India.

Keep the rental income in a foreign bank account.

Use it to service the mortgage or manage property-related expenses abroad.

This offers financial flexibility for returning NRIs who continue to maintain assets overseas.

Final Thoughts

For NRIs returning to India, foreign rental income is not immediately taxable — but it becomes so once you attain ROR status. The good news? You can still claim deductions on mortgage interest and are not required to repatriate rental earnings.

Understanding these nuances will help you plan your taxes better, ensure compliance, and maximize deductions legally.