8 May 2026Updated: May 2026
When an NRI owns property in India, municipal property tax is a recurring obligation — one that does not pause because the owner lives abroad. Ignoring it has compounding consequences: penalties, interest, and in some states, attachment of property before a sale can be registered.
Who Is Liable to Pay Property Tax on NRI-Owned Property?
Property tax is levied by the local municipal authority — corporation, municipality, or panchayat — based on the annual rental value or capital value of the property. The owner is liable, not the tenant. If an NRI has let out the property, the municipal tax liability remains with the NRI even though the tenant occupies it.
Under most municipal laws, if arrears remain unpaid for a specified period, the authority can attach and sell the property to recover dues. This is entirely separate from any income tax or FEMA compliance — it is a local government levy.
How Municipal Tax Works When Property Is Rented Out
If the property is let out, the rental income is taxable under the head "Income from House Property" in the NRI's ITR. Under Section 24 of the Income Tax Act:
- Standard deduction: 30% of net annual value (NAV) is allowed as a flat deduction, irrespective of actual expenditure
- Municipal taxes paid: Deductible from gross annual value to arrive at net annual value — but only if actually paid during the year
- Interest on home loan: Deductible without limit for let-out property (subject to set-off restrictions of ₹2 lakh against other heads)
Municipal taxes paid are therefore both a legal obligation and a tax deduction. NRIs who pay municipal tax through a Power of Attorney holder or online should retain proof of payment for ITR purposes.
TDS on Rent Paid to NRI
The tenant paying rent to an NRI is required to deduct TDS under Section 195 at 30% (plus surcharge and cess) — regardless of the rent amount. This applies even if monthly rent is below ₹50,000. The tenant must obtain a TAN, deposit TDS, and issue Form 16A to the NRI.
Many tenants — particularly individuals renting from NRIs — are unaware of this obligation. Non-deduction exposes the tenant to penalties and interest. If TDS has not been deducted, the NRI should factor this in when computing self-assessment tax on rental income.
Power of Attorney for Property Management
Most NRIs appoint a trusted person in India — family member or professional — as Power of Attorney (PoA) holder to manage the property. The PoA must be:
- Executed before an Indian consulate or notarised abroad and apostilled
- Registered in India (particularly for transactions involving immovable property)
The PoA holder can pay municipal taxes, manage tenants, collect rent, and deal with local authorities. They cannot, however, gift or sell the property to themselves — any sale requires the NRI's specific authorisation or a specifically worded sale PoA.
Consequences of Not Paying Property Tax
- Penalty and interest: Most municipal authorities levy 1–2% per month on arrears
- Attachment: The municipality can attach and auction the property if arrears cross a threshold
- Sale obstruction: Property tax clearance certificate is required at the time of sale registration. Arrears must be cleared before the sale deed can be registered
- Loss of rental deduction: Municipal tax paid in a year is deductible from rental income; if paid in arrears in a later year, the deduction shifts accordingly
Vacant Property — Is It Also Taxable?
Yes. A vacant property is still subject to municipal tax. For income tax purposes, a property that has been vacant throughout the year has a deemed rental value of nil — so there is no income tax liability on a genuinely vacant property. But municipal tax is payable regardless of occupancy. NRIs with vacant ancestral or inherited property often discover years of arrears when they eventually decide to sell.
Practical Steps for NRIs
- Verify whether your property is registered with the local municipal authority under your name (or updated after inheritance)
- Check outstanding dues online — most municipal corporations in Kerala now have online portals
- Set up standing instructions or authorise your PoA holder to pay municipal tax annually
- Retain all payment receipts — required at sale registration and useful for ITR deduction claims
- If the property has been inherited, update the name records with the municipality promptly
Regi Tom Antony And Associates advises NRIs on property tax compliance, rental income ITR filing, TDS on rent, and PoA structures for property management. Based in Kakkanad, Kochi. Contact: letstalk@rtaandassociates.com