Explained: How The Latest Tax Bill 2025 Changes House Property Income Rules
Revised Income Tax Bill clarifies 30% deduction post-municipal tax and extends pre-construction interest benefit to let-out homes
New Income Tax Bill 2025: Clause 22 of the revised New Income Tax Bill, 2025, has addressed two long-pending ambiguities in the taxation of 'Income from House Property."
1. Standard Deduction Clarification
The Bill now explicitly states that the 30% standard deduction will be calculated on the net annual value—that is, after deducting municipal taxes from the annual value determined under Clause 21.
In the earlier draft, it was unclear whether the deduction applied before or after municipal tax deduction, raising concerns it could be taken on the gross annual value.
The Lok Sabha Select Committee recommended this amendment to preserve fairness and align the new law with existing provisions under Sections 23 and 24 of the Income-tax Act, 1961.
Under current law, interest on borrowed capital for acquiring or constructing a property can be claimed as a deduction, including pre-construction interest spread over five equal annual instalments. This benefit applies to both self-occupied and let-out properties.
What It Means for Homeowners
Tax experts say these clarifications prevent potential disputes and ensure the computation process remains consistent with long-established practice.
Experts Take:
Chartered Accountant Abhishek Soni, co-founder of Tax2Win, said: 'A let-out house property is one that is rented out or leased to another party. The rental income from such a property is taxable under 'Income from House Property'. Individuals can claim tax deductions on municipal taxes paid, standard deduction (30% of net annual value), and interest on home loans."
CA (Dr.) Suresh Surana explained to The Economic Times:
Under the current Income-tax Act, 1961, Sections 23 and 24 govern the computation of 'Income from House Property." Section 23 allows municipal taxes actually paid to be deducted from the annual value to arrive at the net annual value, and Section 24(a) allows a standard deduction of 30% on this net value.
However, the original draft of the Income-tax Bill, 2025, did not clarify whether the 30% deduction was to be applied before or after municipal taxes, raising concerns it might be calculated on gross annual value. The Select Committee's recommendation now ensures the 30% standard deduction applies to the annual value after municipal taxes—aligning with existing practice.
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Aparna Deb
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a...Read More
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