House Property Tax in India: 2025 Rules & Deductions

If you’ve ever tried to make sense of how income from house property gets taxed in India, you know it’s anything but straightforward. With the government tweaking rules in Budget 2024 and 2025, there’s even more for property owners, investors, and tax professionals to keep up with. Let’s walk through what’s new, what stays the same, and how you can actually make these rules work for you—without the jargon overload.

What Counts as “Income from House Property”?

Here’s the basic idea: If you own a building—whether it’s your home, an office, a shop, or even a warehouse—and you earn rent from it, that income usually gets taxed under the “Income from house property” head. But there’s a twist: If you’re using that property for your own business or profession, the rent isn’t taxed here. Instead, it falls under “Profits and Gains from Business or Profession.” This is a big deal for small business owners who operate out of their own buildings.

The government recently closed a loophole that allowed some folks to sneak rental income into the business income category to claim extra deductions. From April 1, 2025, all rental income must be taxed under “Income from house property,” with only a few deductions allowed—municipal taxes, a standard deduction, and eligible interest payments.

And who’s considered the “owner” for tax? It’s not just about whose name is on the papers. If you’re entitled to receive the income, you’re on the hook for the tax. That’s based on a Supreme Court decision, and it matters a lot in cases where ownership and benefit don’t always match up.

Figuring Out the “Annual Value” of Your Property

This is where things used to get messy. Section 23 of the Income Tax Act used to make you compare municipal value, fair rent, and expected rent—basically, a headache. But Budget 2025 has tried to make life easier, especially for people living in their own homes.

Self-occupied homes: If you live in your property (or can’t, for any reason), the annual value is considered nil—so, no tax on notional rent. But this is only for up to two homes.
Let-out properties: Here, you have to look at what similar properties fetch in rent and the actual rent you receive. The higher of the two becomes your Gross Annual Value (GAV).
Mixed-use properties: If you partly live in and partly rent out a property, the whole thing is treated as let-out for tax purposes.
Builders’ unsold stock: For developers, unsold flats or buildings are treated as having nil annual value for up to two years after completion. This gives the real estate sector some breathing room.

Deductions: Where You Can Save

Section 24 is your friend here. It offers two main deductions:

Standard Deduction: You can knock off 30% of your Net Annual Value (after municipal taxes) as a flat deduction. No need to show receipts for repairs or maintenance.
Interest on Home Loans: This is a biggie. If you’ve taken a loan to buy, build, or improve your property:
- For self-occupied homes, you can claim up to ₹2,00,000 per year (if the loan was taken after April 1, 1999 for purchase/construction).
- For repairs or older loans, the cap is ₹30,000.
  
  -For let-out properties, there’s no upper limit—you can claim the entire interest paid.

If you paid interest during construction, you can spread that amount over five years, starting from when the property is ready.

There are also special deductions for first-time homebuyers (Sections 80EE and 80EEA), but you have to meet certain conditions about loan dates and property value.

What If Your Tenant Doesn’t Pay?

Section 25A deals with the real world—sometimes, tenants don’t pay on time. You only pay tax on rent when you actually receive it, not when it’s due. If you recover old dues (even after selling the property), you still have to declare it as income, but you get the standard 30% deduction.

Example: If Mr. Sharma missed out on ₹2,40,000 in rent in 2022-23 but managed to recover it in 2024-25, he’d declare it as income that year. After the 30% deduction, only ₹1,68,000 is taxable.

Co-Ownership: Splitting the Pie

If you co-own a property, each person is taxed on their share—provided the shares are clear. Deductions are split the same way. This can be a smart way for families to manage their tax liability, especially if people are in different tax brackets.

Deemed Ownership: When You’re Taxed Even If You’re Not the Legal Owner

Section 27 is about closing loopholes. If you transfer a property to your spouse or minor child without proper payment, you’re still treated as the owner for tax. The same goes for people who hold long-term leases (12 years or more) or benefit from the property without being the legal owner.

Setting Off Losses: The New Rules

Earlier, if you had a big loss from house property (say, because of high loan interest), you could set it off against your salary or other income. Now, that’s capped at ₹2,00,000 per year. Anything above that can only be carried forward to set off against future house property income, for up to eight years.

Key Differences Between Old and New Tax Regime

Feature	Old Regime	New Regime
House Property Loss Set-off	Up to ₹2,00,000 against other income	Not permitted
Chapter VIA Deductions	Available	Mostly unavailable
Additional Deductions (80EE/80EEA)	Applicable	Not applicable
Section 24(b) Interest	Applicable	Applicable (basic only)

Insights on Choosing the Best Regime

Individuals with considerable house property losses may find the Old Tax Regime more beneficial, particularly despite higher tax rates. The availability of deductions and set-offs can substantially impact tax liability, making it essential to analyze personal circumstances before opting for one regime over the other.

NRIs: Special Rules and Double Taxation Treaties

If you’re an NRI earning rent from Indian property, you’re taxed in India no matter where you live. The standard TDS is 31.2%, but Double Taxation Avoidance Agreements (DTAAs) with countries like the US, UAE, or Mauritius can reduce this rate. To claim these benefits, you’ll need a Tax Residency Certificate from your home country.

What’s New and What’s Next? Budget 2025 has made it easier to figure out the annual value for self-occupied homes and continues to push for affordable housing. But as always, the devil is in the details—especially when it comes to documentation.

Keep these handy:

Property ownership and registration papers
Rental agreements
Municipal tax receipts
Home loan statements
Bank statements showing rent received
TDS certificates (for NRIs)

Common Pitfalls and Smart Planning

Watch out for these mistakes:

Mixing up business and house property income
Miscalculating annual value for “deemed let-out” properties
Missing out on deductions because of poor paperwork
Not applying the ₹2 lakh loss set-off rule correctly

Smart strategies include:

Timing your home loans to maximize interest deductions
Using co-ownership for income splitting
Managing your property portfolio to balance rental and self-occupied properties
Planning property sales to coordinate with income and loss carry-forwards

Wrapping Up

India’s house property tax rules are complex, but with the recent changes, there’s a real push toward simplicity and fairness.