New Tax Bill 2025: How It Reshapes House Property Income Rules

The Income Tax Bill 2025 has introduced major changes for property owners in India. These updates aim to clarify deductions, protect vacant property owners, and extend loan interest benefits. With simpler definitions and fairer provisions, taxpayers can now better plan their returns.

Standard Deduction Made Simpler

One of the most important changes is the clarity on the 30% standard deduction. The deduction now applies after municipal taxes are subtracted from the property’s annual value.

This removes years of confusion for taxpayers who were unsure whether to deduct municipal taxes before or after applying the 30% rate. The clarification will reduce disputes and make self-assessment easier.

For example, if your property’s annual value is ₹6,00,000 and you pay ₹20,000 in municipal taxes, your taxable base becomes ₹5,80,000. You then apply the 30% standard deduction, making your taxable income ₹4,06,000 before any other deductions.

Pre-Construction Interest Relief Expanded

Earlier, pre-construction home loan interest deductions were mainly available for self-occupied houses. The 2025 bill extends this benefit to let-out properties as well.

This means if you buy an under-construction flat with a loan and later rent it out, you can still claim the pre-construction interest. The deduction is allowed in five equal annual instalments starting from the year of completion.

This change is significant for real estate investors, as it increases the after-tax return on rental properties.

Vacant Homes Get Tax Relief

The bill protects owners of vacant homes from higher deemed rental taxation. The earlier draft could have taxed these properties more aggressively by introducing vague phrases like “in normal course.”

Thanks to the Select Committee’s recommendation, vacant homes will continue to follow the current rule — no tax if they are not let out. This offers peace of mind to owners holding property for personal or investment purposes.

Quick Comparison of Key Changes

Did You Know?

Annual value is now defined as the higher of actual rent or notional rent, minus municipal taxes. Unrealised rent is excluded.

Why These Changes Matter

These provisions make compliance easier for homeowners, investors, and landlords. Homeowners benefit from a smaller taxable income due to the municipal tax adjustment. Investors gain from pre-construction interest deductions on rental properties. Property holders can avoid unnecessary tax on vacant homes.

The bill is part of a broader reform effort to simplify tax law, reduce the number of sections, and promote faceless digital assessments. For Indian property owners, this is a welcome move toward fairness, clarity, and predictability in taxation.