Income Tax Bill 2025: Union Finance Minister Nirmala Sitharaman presented the Income Tax Bill of 2025 in the Lok Sabha and requested Speaker Om Birla to assign it to a select committee. The new bill, spanning 620 pages, is considerably smaller than its predecessor which stretched over 800 pages. The proposed legislation aims to streamline and simplify tax provisions, resulting in a nearly 50% reduction in length.
The bill outlines specific methods for computing taxable income from property. Key highlights include:
> The bill revises the method of determining a property's annual value, stating that it will be calculated based on the higher value between the reasonable expected rent or the actual rent received for properties that are let out.
> For vacant properties, the annual value will be determined based on the rent received during the occupied period, as per the new bill's provisions.
> By implementing these changes, the tax burden on landlords facing prolonged vacancies will be reduced.
> Property owners can still claim a 30% standard deduction on annual value, but there is now a limit on the deduction for interest paid on borrowed capital.
> For self-occupied properties, the maximum deduction is capped at Rs 2 lakh per year, as long as the construction or acquisition is completed within five years of borrowing.
> Any interest paid before completion can be deducted in five equal instalments over the following years. There is no limitation on interest deduction for rented properties.
> Rent arrears or unrealized rent from any property ownership status will be taxed in the year it is received under the new rules.
> Developers will receive a two-year relief from taxation on unsold inventories for flats or commercial units following the completion certificate.
“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.
Co-owned properties
When it comes to the tax treatment of properties owned by multiple individuals, each co-owner will be taxed according to their specific ownership percentage.
The Bill includes updated guidelines for the taxation of properties owned by multiple individuals:
In cases where co-owners have established and identifiable ownership shares, each individual will be subject to separate taxation based on their percentage of ownership.
If ownership shares are not specified, taxation will be conducted collectively as an Association of Persons (AOP).
Losses from property
The new rules impose a limitation on the set-off and carry forward of losses in the context of 'income from house property', restricting the maximum amount that can be set off against other income heads to Rs 2 lakh per year.
In accordance with the updated regulations, the maximum amount of loss that can be offset against other income heads under 'income from house property' is limited to Rs 2 lakh per year. Any remaining unabsorbed loss can be carried forward for up to eight years, but can only be utilized to adjust against future house property income.
Revised Capital Gains Exemptions on Property Sales
The bill has outlined new criteria for qualifying for capital gains exemptions on property sales under section 67:
A taxpayer may claim an exemption on capital gains from property sales if a new property is acquired within two years or constructed within three years. If the newly acquired asset is sold within three years, the previously exempted gain will be subject to taxation as long-term capital gains in the year of sale. Reinvestment exemptions are restricted to Rs 10 crore, aimed at addressing excessive tax avoidance schemes.