Budget 2024: Nirmala Sitharaman closes a major income tax loophole on house properties. Details inside

Income tax authorities have observed that some taxpayers are classifying rental income from house properties under ‘Profits and gains of business or profession’ rather than the appropriate ‘Income from house property’. 

This misclassification allows taxpayers to reduce their tax liabilities, thereby decreasing revenue for the government.

To address this issue, the recent Budget introduces a crucial amendment. Starting April 1, 2025, any income derived from letting out a residential house or part of it by the owner will be strictly charged as “Income from house property.” 

This change aims to close the loophole and ensure accurate tax reporting.

Additionally, the tax authorities have noticed that some resident taxpayers are not including taxes withheld outside India when calculating their total income for filing returns domestically. 

By reporting only the net income earned abroad, adjusted for withheld taxes, taxpayers under-report their gross income. This practice not only results in lower reported income but also leads to inflated claims when these withheld taxes are deducted against their tax liability in India.

To counter this, the Budget proposes an amendment making it explicit that foreign tax credits must be included as income for calculating total taxable income. 

This amendment, effective from April 1, 2025, aims to provide clarity and ensure comprehensive reporting of global income by resident taxpayers.