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The year 2025 has been favourable for real estate from a taxation perspective. Simplified capital gains rules and streamlined GST have brought greater clarity for homebuyers, prompting even fence-sitters to consider making a purchase. Here’s a closer look.
Two homes, one tax relief: Budget 2025 eased second-home burden
From April 2025 onwards, homeowners can treat two properties as self-occupied . This lets them claim nil annual value, a major relief from earlier rules that allowed only one. This means no notional rental income will be applicable on either home, even if one remains vacant.
This benefits families who have homes in different cities for use by their parents and reduces both compliance and tax liability. However, this applies only if neither of the properties are rented. If you rent out your home, your rent is still taxed as income from house property.
The change benefits families maintaining homes in different cities or for parents’ use, reducing both compliance and tax liability. However, the benefit applies only if neither property is rented. While this tweak slightly improves the tax efficiency of owning a second home, other costs such as maintenance, capital gains tax, and low rental yields still weigh on returns.
Financial impact of pre-construction home loan interest deduction
Allowing the deduction of pre-construction home loan interest for both self-occupied and let-out properties provides meaningful financial relief to taxpayers.
“For self-occupied homes, the rule permitting the pre-construction interest to be claimed in five equal installments beginning from the year of completion allows homeowners to enjoy tax benefits even before earning any rental income, improving early-stage cash flow during loan repayment,” says Ratish Gupta, Director of Wealth Wisdom India.
The benefit of pre-construction home loan interest deduction largely depends on the tax regime chosen by the taxpayer. “However, under the new tax regime, which has become more popular owing to beneficial slab rates and lower tax rates, such deductions hold limited relevance, especially for self-occupied properties, where the benefit is not available,” says Riyal Goel Jain, Partner and NRI Tax Expert, Dinesh Aarjav & Associates, Chartered Accountants.
Clarification on 30% standard deduction after municipal taxes
The explicit clarification that the standard 30% deduction under Section 24(a) applies after deducting municipal taxes ensures that property owners are taxed only on their actual rental income, known as Net Annual Value (NAV). Since municipal taxes are a mandatory expense directly related to property ownership, allowing their deduction before computing NAV prevents inflation of taxable income.
Also Read: Property Tax made simple: Rules, rebates, and how to avoid penalties
“This provision enhances fairness and transparency by recognizing only the genuine income left after essential outgoings and ensures uniform interpretation of the law, providing property owners with a clear and consistent method of calculating Income from House Property,” says Gupta.
Progressive tax slabs and enhanced rebate under section 87A
The increase in the rebate limit under Section 87A, coupled with progressive tax slabs, has significantly expanded the threshold of tax-free income for individuals earning only rental income.
“Under the revised framework, taxpayers with net rental receipts of up to approximately ₹17 lakh per annum may effectively face zero tax liability after accounting for the 30% standard deduction, compared to the earlier limit of around ₹10 lakh,” says Jain. This change is particularly beneficial for urban property owners, where rental values tend to be higher, providing meaningful relief.
“Taxpayers with moderate incomes and minimal deductions are likely to gain from the new regime’s simplified structure, while those with substantial loan interest may still find the old regime more tax-efficient,” says Gupta.
Implications of the revised LTCG rate of 12.5% without indexation for property sellers and NRIs
The introduction of a flat 12.5% long-term capital gains (LTCG) tax rate without indexation from July 23, 2024, marks a significant shift in property taxation, particularly for non-resident Indians (NRIs). While the move simplifies compliance and ensures a lower, uniform tax rate, it eliminates the indexation benefit entirely for NRIs.
In contrast, resident taxpayers continue to enjoy both options—20% with indexation or 12.5% without indexation, for properties purchased before July 23, 2024. “The optimal choice thus depends on the acquisition cost and appreciation level: where the purchase price is low and gains are substantial, the 12.5% rate may be more favourable; however, in moderate appreciation cases, indexation can still yield lower taxable gains for residents only,” says Jain.
TDS relief: Rent limit raised to ₹50,000 a month
From Financial Year 2025-26, the threshold for when TDS must be deducted on rent has been raised to ₹50,000 per month or effectively ₹6 lakh per annum. Earlier, the threshold was much lower at ₹2.4 lakh per annum. This means most landlords who have properties where annual rent is less than Rupees six lakh rupees per annum will receive their full rent without any deduction. It will also reduce their compliance hassle, as they will not be required to claim credit for TDS deducted.
Also Read: Bengaluru real estate: Are security deposits now ‘passive income’ for landlords? Tenants ask
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
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