Know how your property would be taxed under new Income Tax Bill 2025

In respect to a property or its part held as stock-in-trade and not let wholly or partly at any time during the tax year, the annual value shall be nil for two years from the end of the financial year

The new Income Tax Bill is expected to be introduced in the Lok Sabha on February 13. The bill aims to simplify tax laws and modernise compliance structures.

 

According to the Bill shared with Members of Parliament, the Income Tax Bill, 2025 comprises 536 sections, higher than 298 sections of the current Income-Tax Act, 1961. The existing law has 14 schedules which will increase to 16 in the new legislation.

 

“Aimed at overhauling the nation’s tax system, the bill seeks to eliminate obsolete sections that have accumulated over decades. Its primary objective is to simplify the tax laws, ensuring they are more transparent, easier to interpret, and taxpayer friendly,” said Rohinton Sidhwa, partner, Deloitte India.

 

 

“The New Income Tax Bill, 2025, will redefine the taxation of house property income, particularly regarding deductions, set-off of losses, and the tax treatment of multiple properties,” said Niyati Shah, vertical head - Personal Tax at 1 Finance. 

 

The bill establishes detailed guidelines for computing taxable income from property, with special considerations for self-occupied properties and vacant properties held as stock-in-trade. Let's have a look at house property income rules in detail:

 

Annual value computation adjustments

 

The Bill revises the methodology for determining the annual value of a property. It mandates that the annual value be calculated based on the higher of:

 

The reasonable expected rent from year to year, or

 

The actual rent received or receivable if the property is let out.

 

For vacant properties, the annual value will now be computed based on actual rent received during the occupied period, reducing the tax burden on landlords facing extended vacancies.

 

Deduction provisions 

 

Property owners can continue to claim a standard deduction of 30 per cent on the annual value. However, a key amendment limits the deduction on interest payable on borrowed capital:

 

A maximum deduction of Rs 2 lakh per year for self-occupied properties, provided construction or acquisition is completed within five years of borrowing.

 

Interest paid before completion will be allowed as a deduction in five equal installments over subsequent years.

 

For rented properties, there is no cap on interest deduction, ensuring higher benefits for landlords with mortgage liabilities.

 

Arrears and unrealised rent to be taxed separately

 

Under the new rules, any arrears of rent received from tenants or unrealised rent collected subsequently will be taxed in the year of receipt, irrespective of ownership status. A 30 per cent deduction on such arrears is permitted to account for maintenance and recovery expenses.

 

Relief for unsold inventory held by developers

 

For builders and developers holding unsold flats or commercial units, the annual value of such properties will be treated as nil for two years from the date of obtaining the completion certificate. This extension provides relief to the real estate sector by reducing tax liabilities on unsold inventory.

 

Tax treatment for co-owned properties

 

The Bill introduces clearer provisions for taxation of co-owned properties:

 

If co-owners have definite and ascertainable shares, each will be taxed separately based on their ownership percentage.

 

If not defined, taxation will be done collectively as an Association of Persons (AOP).

 

Set-off and carry forward of losses

 

The maximum amount of loss under ‘income from house property’ that can be set off against other income heads is capped at Rs 2 lakh per year. Any unabsorbed loss can be carried forward for eight years, but can only be adjusted against future house property income.

 

Revised capital gains exemptions on property sales

 

The bill also introduces new conditions for availing capital gains exemptions under section 67:

 

A taxpayer can claim exemption on capital gains from property sales only if a new property is purchased within two years or constructed within three years.

 

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

 

Exemptions are capped at Rs 10 crore for reinvestments, curbing excessive tax avoidance strategies.