Pre-Leased Commercial Property for NRIs: Net Yield After TDS, GST and Repatriation
A pre-leased commercial unit advertised at a 7.5% yield typically leaves an NRI owner closer to 6%. Stamp duty raises the real cost, the owner still pays property tax and should reserve for vacancy, and the tenant withholds 31.2% of every rupee of rent as TDS, most of which returns only as a refund. Rent can then be repatriated from the NRO account after tax, outside the USD 1 million cap.
Key takeaways
- Rent paid to a non-resident carries TDS at 30% plus 4% cess, 31.2%, from the first rupee, under section 393(2) of the Income-tax Act, 2025 (old section 195).
- A lower deduction certificate on Form 128 (old Form 13) under section 395 cuts TDS to near your real liability; without one, the excess is locked up until your refund arrives.
- Commercial rent attracts 18% GST. Since 10 October 2024, a registered tenant renting from an unregistered landlord pays it under reverse charge. A landlord needs registration once rent crosses Rs 20 lakh a year.
- In our worked example, a 7.5% headline yield falls to about 6.1% after stamp duty, costs, tax and the TDS cash drag.
- Rent is current income: after tax it can be sent abroad from the NRO account without using the USD 1 million annual cap, using Forms 145 and 146 (old 15CA and 15CB).
Why the headline yield overstates your return
Sellers quote yield as annual rent divided by the sale price. That ignores what you pay to buy, what you pay to hold, and the tax paid before the money reaches you. Quoted yields also vary widely: our own listings cite 6% to 9% for Gurgaon office micro-markets, while promotional pages elsewhere claim 8% to 12% for Grade A assets. The higher the quote, the harder you should read the lease.
For an owner abroad, three items bite harder than for a resident: TDS on the full rent at the top rate, the paperwork around GST, and the cost and delay of moving money out. The pre-leased listings show what is on offer; this guide is about what those numbers become in your hands.
Worked example: from 7.5% gross to about 6.1%
Assumptions: a Rs 2 crore office unit let at Rs 1.25 lakh a month (Rs 15 lakh a year); stamp duty and registration of about 7%; the tenant pays maintenance and common-area charges, as is usual in a pre-leased deal; property tax of Rs 40,000 a year (illustrative); a 5% vacancy reserve for re-letting at lease expiry; Rs 10,000 a year for insurance and sundries; no other Indian income; the new tax regime.
| Line | Amount | Yield on Rs 2.14 crore all-in cost |
|---|---|---|
| Headline yield on the Rs 2 crore price | Rs 15,00,000 rent | 7.5% on price; 7.0% on all-in cost |
| Less property tax | Rs 40,000 | |
| Less vacancy reserve (5% of rent) | Rs 75,000 | |
| Less insurance and sundries | Rs 10,000 | |
| Net income before tax | Rs 13,75,000 | 6.4% |
| Less Indian income tax | Rs 43,888 | |
| Net income after tax | Rs 13,31,112 | 6.2% |
| Less cost of TDS refund locked up for a year (at 7%) | Rs 29,688 | |
| Effective net yield | Rs 13,01,424 | 6.1% |
How the tax line is worked
Annual value is Rs 15 lakh less Rs 40,000 of property tax, or Rs 14.6 lakh. The standard 30% deduction leaves Rs 10.22 lakh taxable. Under the new-regime slabs, nil up to Rs 4 lakh, 5% on the next Rs 4 lakh (Rs 20,000) and 10% on the remaining Rs 2.22 lakh (Rs 22,200), gives Rs 42,200, plus 4% cess, Rs 43,888. NRIs do not get the rebate that makes income up to Rs 12 lakh tax-free for residents, so this is the real bill.
The tenant, though, deducts 31.2% of Rs 15 lakh: Rs 4,68,000. That is Rs 4,24,112 more than you owe. It comes back only after you file your return and it is processed, so for roughly a year it earns you nothing. At a 7% opportunity cost, that alone shaves Rs 29,688 off the return. The detailed computation is in our guide to NRI rental income tax.
Stopping the TDS drag with Form 128
Section 395 of the 2025 Act (old section 197) lets the Assessing Officer issue a certificate authorising your tenant to deduct at a lower rate, or not at all. You apply on Form 128 with your projected income and tax. The certificate is issued for your payer and the financial year, so plan to apply before the year starts and renew every year. With one in place, the Rs 4.24 lakh in the example never leaves your hands.
A corporate tenant will usually follow a valid certificate without argument. Check the lease makes the tenant responsible for depositing TDS on time and issuing the quarterly TDS certificates, because your refund depends on their filings showing in your tax credit statement.
GST: who pays, and when you must register
Renting commercial property is a taxable service at 18%. Two regimes now apply:
- You are unregistered, the tenant is registered. Under Notification 09/2024-Central Tax (Rate), effective 10 October 2024, the tenant pays the GST under reverse charge. Your rent is unaffected and you file nothing for GST.
- Your rent crosses the threshold. Once aggregate rent exceeds Rs 20 lakh a year, you need your own registration, must charge 18% on invoices and file returns. Budget for an accountant in India.
A registered tenant can usually claim the GST back as input credit, so it is not a cost to them, but it affects how they structure rent. The Gurgaon specifics are in GST on commercial property in Gurgaon.
Getting the rent out of India
Rent lands in your NRO account. It counts as current income, so after tax it can be remitted abroad or moved to your NRE account without using the USD 1 million a year allowed for capital balances such as sale proceeds. Banks want Form 145 (old 15CA) and, above the threshold, a chartered accountant's certificate on Form 146 (old 15CB). Batch remittances quarterly or half-yearly to keep certificate fees down.
Currency is the hidden line. If the rupee weakens against your home currency by a few percent a year, a 6.1% rupee return shrinks in dollars or dirhams by the same amount. Rent escalation clauses, often around 15% every three years in office leases, help offset it.
Lease checks for an owner who lives abroad
- Lock-in and expiry. Commercial leases commonly run three to nine years with a lock-in. Your income is only as secure as the lock-in; after it ends, the tenant can leave on notice. Buy with at least three years of lock-in left.
- Registered lease. A multi-year lease should be registered. Get the registered copy, not an unsigned draft.
- Tenant quality. Check the tenant's financials and how many other sites it has closed. A single tenant is a single point of failure.
- Who pays what. Maintenance, common-area charges, property tax and insurance should be allocated in writing.
- Assignment on sale. The lease must survive a change of owner, and the security deposit must pass to you at registration.
- Signing from abroad. A registered power of attorney lets a trusted person complete the purchase; see power of attorney for NRIs.
Be wary of "assured return" deals dressed as leases, where the developer, not an operating tenant, pays the rent. Assured return schemes explains why they fail.
Financing and the downside
Banks lend against contracted rent through lease rental discounting, which can release capital from a unit you already own. It adds leverage to a single-tenant asset, which is the risk to watch.
The main downsides: resale is slow and depends on the lease's remaining term; a tenant exit can mean six months or more without rent plus brokerage; office demand can soften; and the paperwork runs every year. For many NRIs, a listed REIT gives similar yields with daily liquidity and no TDS refund chase, and Dubai vs India property investment compares the other market they often weigh.
Frequently asked questions
How much TDS does a tenant deduct on rent paid to an NRI?
The tenant deducts 30% plus 4% cess, an effective 31.2%, on the gross rent from the first rupee, under section 393(2) of the Income-tax Act, 2025, which replaced section 195. Surcharge is added only at high incomes. The tenant needs a TAN and files quarterly non-resident TDS returns. Any excess over your real tax comes back as a refund.
Can an NRI reduce TDS on commercial rent?
Yes. Apply on Form 128 under section 395 of the 2025 Act for a lower or nil deduction certificate, showing your projected income and tax. The Assessing Officer issues it for your payer and the financial year. Apply before the year begins and renew annually, or the full 31.2% will be deducted again.
Does an NRI landlord have to charge GST on commercial rent?
Only once aggregate rent exceeds Rs 20 lakh a year, when registration becomes compulsory and 18% must be charged. Below that, if your tenant is GST-registered, the tenant pays the 18% itself under reverse charge, a rule in force since 10 October 2024. Either way, the GST does not come out of your rent.
Can NRIs send commercial rent abroad without limit?
Rent is current income, so after tax it can be remitted from the NRO account or moved to an NRE account without counting against the USD 1 million annual cap on capital funds. Your bank will ask for Form 145 and, above the threshold, a chartered accountant's Form 146 certificate, the new names for Forms 15CA and 15CB.
What net yield should an NRI expect from pre-leased property?
In our worked example, a Rs 2 crore unit let at 7.5% gross delivered about 6.2% after stamp duty, property tax, a vacancy reserve and income tax, and about 6.1% once the TDS refund delay is counted. A lower deduction certificate recovers most of that last gap. Currency movement can then add or subtract a few points.
If you are weighing a pre-leased unit from abroad and want the lease and numbers checked, talk to Realty Hunting.