Income Tax Bill 2025 | How your property will be taxed under new rules

Union Finance Minister Nirmala Sitharaman introduced the Income Tax Bill, 2025, in the Lok Sabha on Thursday and urged Speaker Om Birla to refer it to a select committee of the House.

The bill provides a detailed guideline for computing taxable income from property. Here is all you need to know about house property income rules:

Revising the method for determining the annual value of a property, the bill mandates that the annual value will be calculated based on the higher value between the reasonable expected rent from year to year, or in case the property is let out, the actual rent received or receivable.

In the case of a vacant property, under the new bill, the annual value will be calculated based on the rent that was received during the occupied period. This will reduce the tax burden on landlords who face vacancies for a long period.

While property owners can continue claiming 30 per cent standard deduction on annual value, an important amendemt in the bill limits the deduction on interest payable on borrowed capital. The deduction provision limits the maximum deduction of Rs 2 lakh/year for self-occupied properties, given that the construction or acquisition is finished within five years of borrowing.

The interest that has been paid before the completion will be permitted as a deduction in five equal instalments over the coming years.

However, in case of rented properties, there is no limit on interest deduction.

Irrespective of the ownership status of the property, any arrears of the rent received or unrealised rent collected will be taxed in the year of receipt, as per the new rules.

Meanwhile, in what comes as a relief for unsold inventories by developers, the annual value for unsold flats or commercial units will be considered as nil for two years from the date of obtaining the completion certificate.

Coming to the tax treatment for co-owned properties, in case the co-owners have definite shares, they will each be taxed based on their individual ownership percentage. However, if the ownership is not defined, they will be taxed collectively.

In terms of set-off and carry forward of losses, the new rules cap the maximum amount of loss under ‘income from house property’ that can be set off against other income heads at Rs 2 lakh per year. Meanwhile, while unabsorbed losses can be carried forward for eight years, they can only be adjusted against the future house property income.

Fresh conditions for availing capital gain exemptions have been proposed in the bill, under which, only if a new property has been purchased with two years or constructed withing three years, can the taxpayer claim an exemption on capital gains from property sales.

However, of the new asset gets sold within three years, the exempted gain will be taxed in the year of sale as long-term capital gains.

In case of reinvestments, curbing excessive tax avoidance strategies, the exemptions under the new rules are capped at Rs 10 crore.