The Budget 2025 has made life simpler for homeowners and tenants.
Individuals earning up to ₹12 lakh annually will enjoy ZERO income tax liability under the new tax regime. The real estate sector and homeowners have two important changes to cheer.
- Two houses allowed as self-occupied house properties
- TDS liability threshold for rent payments increased to Rs 6 lakh/year
Tax-Free Second Home
In Budget 2025, homeowners are now allowed to have two self-owned houses. Until now, taxpayers were allowed to have just one self-owned property. Any person owning more than one residential properties could only claim one of the houses as self-occupied. All other houses were treated as income-generating properties for tax purposes. Now, an individual owning multiple houses can claim two as self-occupied properties instead of just one.
It’s a huge relief for people as many own multiple homes, often in different cities. Even while the homes were used as residence by the owner, one had to pay tax on the deemed rental income of the self-occupied second house.
An Illustrative Example
Consider the example of Sitaram. He owns two properties—one in Delhi, where he lives with his wife and children, and another in Patna, where his parents live.
Under the previous tax laws, his Patna property would be considered to be rented out and assumed to have a rental income. Even though Sitaram did not actually earn any rent from this property, he had to include the notional rental income from the property based on its fair rental income (market rental value). He had to report this in his tax returns and pay taxes on this assumed rental income.
With the new provision in Budget 2025, this deemed rental income is no longer applicable. Sitaram can now relax and claim both of the properties as self-occupied. It saves him from tax liability and also makes tax filing simpler.
Higher TDS Threshold on Rent
Tax Deducted at Source (TDS) threshold on property rent payments has been simplified too. The Budget 2025 now required TDS on property rentals only if the annual rent is Rs 6 lakh or more. Earlier, tenants paying more than ₹2.4 lakh annually (₹20,000 per month) in rent were required to deduct TDS at 10% before making rental payments. The landlord could claim this deducted tax while filing returns, but it involved additional paperwork and potential delays.
Room for Reform
The Budget 2025 brings great relief for taxpayers. However, there’s still room for reforms for tax implications of property ownership. When an individual owns multiple properties, it should not be taxed on assumed rental income and then again be subject to capital gains tax on sale. A vacant property should not be assumed to be rented if its vacant. The idea of notional rental income is against the idea of using properties as investment vehicles.
