The revised New Income Tax Bill, 2025, has brought much-needed clarity to the taxation of “Income from House Property,” addressing two major ambiguities that had raised concerns among taxpayers and experts.
1. Standard Deduction to Be Calculated After Municipal Taxes
The bill now makes it clear that the 30% standard deduction will be applied on the net annual value—that is, the annual value of the property minus municipal taxes paid. This aligns with the long-standing provisions under Sections 23 and 24 of the Income-tax Act, 1961, and ensures the deduction is not calculated on the gross annual value.
The change follows recommendations from the Lok Sabha Select Committee, which sought to remove confusion from the earlier draft.
2. Pre-Construction Interest Deduction Restored for Let-Out Properties
The revised bill also reinstates the benefit of claiming pre-construction interest deductions for let-out properties, which had been excluded in the earlier draft. Under current law, interest on borrowed capital—both for self-occupied and let-out properties—can be claimed, with pre-construction interest spread over five equal annual instalments.
The update preserves parity between self-occupied and rented properties, avoiding inconsistencies with existing provisions.
What This Means for Homeowners
If you own a property and have taken a home loan—whether you live in it or rent it out—you can continue to claim deductions for:
- Municipal taxes actually paid
- A standard deduction of 30% on net annual value
- Interest on home loans, including pre-construction interest (in five equal instalments)
Tax experts say these clarifications will help prevent disputes and ensure computation remains consistent with established practices.
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Image Credit: Respective Owner
