What are The New Tax Rules for Real Estate in Budget 2025

Budget 2025 introduces clearer, fairer tax rules on real estate: you can now claim a standard deduction of 30 % after municipal taxes, and pre-construction interest is deductible for both self-occupied and let-out properties. You can designate up to two self-occupied homes as tax-free. Vacant property rules stay unchanged, and TDS on rental income has been relaxed. These updates ease compliance for homebuyers, NRIs, and investors.

Introduction

Here’s the crux: Budget 2025 brings refreshing clarity and fairness to real estate taxation. Property owners, whether you’re a first-time homebuyer, an NRI, or a seasoned investor, will benefit from streamlined deductions and relaxed compliance norms. Notably, the standard 30 % deduction now applies after municipal taxes, pre-construction interest deduction extends to both self-occupied and let-out properties, and you’re allowed to designate two self-occupied properties as tax-free. With TDS thresholds raised and vacant property taxation halted, the Budget’s reforms are practical and investor-friendly. In short, Budget 2025 delivers a more transparent, simplified tax regime, making property ownership and investment smoother.

What deduction changes apply to house property income?

Direct Answer:
Budget 2025 clarifies that the 30 % standard deduction on rental income is calculated after municipal taxes, and allows deduction of pre-construction home-loan interest for both self-occupied and let-out properties. This ensures fair and transparent relief across all property types.

Expanded Insight:
Clause 22 of the new Income Tax Bill 2025 explicitly states that the 30 % standard deduction will be applied to the annual value after municipal taxes are deducted. This fixes ambiguity in the previous law, where the calculation wasn’t clearly defined. Additionally, pre-construction interest paid on home loans before construction is completed can now be claimed as a deduction not just for self-occupied homes, but also for let-out properties. For property owners, this is a substantial move: it increases deductible expenses, eases your taxable income, and removes old restrictions that limited fairness. If you’re planning new construction or renting out a home, this naturally brings better tax planning flexibility and supports investing in rental properties.

How many self-occupied properties can I claim as tax-free?

Direct Answer:
Budget 2025 allows you to designate two self-occupied properties as tax-free (i.e., with annual value taken as nil), up from one, provided no rental income is earned from them.

Expanded Insight:
Under the updated rules, taxpayers can choose two properties to be treated as self-occupied with nil annual value without triggering rental income taxation. Previously, this benefit was limited to just one property, unless specific conditions applied. Now, you can have, for example, a home in Mumbai and another in Gandhinagar, both treated as self-occupied, and both exempt from property income. This is a meaningful change for families holding multiple residences, think parents living in one city and children in another, or for those renovating or transitioning between homes. It simplifies income tax filings and reduces the burden on genuine homeowners. Remember: properties designated must truly not yield any rental or other benefits.

Were vacant properties taxed more under Budget 2025?

Direct Answer:
No. The Select Committee reviewed and removed clauses that would have imposed a higher tax on vacant home properties. So, vacant properties remain taxed under the old regime, avoiding increased tax liabilities.

Expanded Insight:
Earlier drafts of the Income Tax Bill proposed treating vacant residential properties as deemed to derive rental income under “normal course” language. That would have effectively raised taxes on unoccupied properties. Thankfully, the Lok Sabha Select Committee identified drafting flaws and recommended deletions, removing the “in normal course” stipulation. As a result, the taxation treatment of vacant properties remains unchanged from the 1961 Act. For investors or owners between tenancies, this is great news: there’s no surprise tax hit just for keeping property unsold or un-rented. This stability reassures long-term investors and avoids penalizing normal market realities.

How have TDS and rental income limits changed?

Direct Answer:
The annual TDS threshold on rental income has been raised from ₹2.4 lakh to ₹6 lakh. This reduces compliance burden for landlords and NRIs in rental markets.

Expanded Insight:
Budget 2025 rationalised both TDS and TCS rules, making life easier for less-than-large-scale landlords. The government raised the threshold for rental income subject to TDS from ₹2.4 lakh to a much higher ₹6 lakh per annum. For most small-time landlords, this means no longer worrying about TDS compliance unless rental income is substantial. For example, an NRI earning rental income of ₹5 lakh annually from a single flat is now exempt from TDS—a welcome relief, especially given the administrative hassle NRIs often face. This move may also encourage more formal rental housing supply and reduce friction in affordable rental markets.

Data Table: Real Estate Tax Reliefs in Budget 2025

How do these changes affect NRIs and real estate investors?

Direct Answer:
NRIs now benefit from higher TDS thresholds and broader deductions. However, long-term capital gains tax now applies at a flat 12.5 % without indexation, increasing tax liability on property sales, something to plan for carefully.

Expanded Insight:
Budget 2025 is a mixed bag for NRIs. On one hand, they enjoy relaxed rental TDS rules and clearer deductions for property income and home loans. On the other hand, capital gains taxation has become trickier: since July 23, 2024, NRIs face a flat 12.5 % LTCG without indexation, instead of 20 % with indexation. The TDS on property sales has also been reduced from 20 % to 12.5 %, but the lack of indexation means overall tax outgo may rise, especially for ancestral properties. The absence of indexation largely erodes inflation-adjusted cost benefits. Therefore, NRIs must factor in planning strategies, perhaps utilizing capital gain exemptions under Section 54/54F or Form 13 to mitigate tax shocks. Overall, while compliance is simpler, tax strategy requires foresight.

What’s changed in the broader tax framework affecting real estate owners?

Direct Answer:
Budget 2025 introduced a new tax regime with zero tax up to ₹12 lakh, revamped slabs, and a simplified Income Tax Act replacing the 1961 law. This modern, digital-first framework benefits all property owners with lower rates and greater transparency.

Expanded Insight:
Although not exclusive to real estate, the overhauled tax structure of Budget 2025 has ripple effects. Income up to ₹12 lakh is now completely tax-free (with standard deduction bringing the exemption to ₹12.75 lakh). Revised tax slabs beyond that are more progressive. Additionally, India has notified the Income Tax Act, 2025, set to take effect from April 1, 2026. This replacement for the 1961 Act introduces unified “Tax Year” naming, fewer sections, faceless assessments, faster refunds, and better clarity on property return filing. For homeowners and investors, this signals a leaner, more transparent system—less ambiguity, faster processing, and lower compliance hassle. All told, it’s a modernisation that supports real estate stakeholders through clarity and efficiency.

Comparison of Key Real Estate Tax Rules: Old vs New (Budget 2025)

Key Takeaways

• Budget 2025 boosts fairness in property taxation through clearer deductions and the expansion of exemptions.
• You now get the 30 % standard deduction after municipal taxes, and the interest deduction covers both self-occupied and let-out properties.
• Tax relief has been extended to two self-occupied homes, and vacant properties escaped the proposed tax hikes.
• Rental income below ₹6 lakh is now free from TDS obligations, great for small landlords and NRIs.
• But beware: NRIs face 12.5 % LTCG without indexation, which can increase tax on property sales.
• The overall tax framework has become leaner, digital, and more taxpayer-friendly, especially with the new Income Tax Act 2025.

The Takeaways

Budget 2025 delivers tangible, user-friendly real estate tax reforms, blending clarity, fairness, and modernisation. From redefining standard deductions to expanding exemptions for self-occupied homes, the budget eases financial burdens for homeowners and real estate investors. Relaxed TDS thresholds on rental income inject much-needed flexibility, especially relevant for NRIs and small landlords. While vacant properties dodged new taxes and compliance hassles have been reduced, NRIs should monitor changes in capital gains rules. 12.5 % LTCG without indexation poses planning challenges. All these updates arrive alongside a broader overhaul of India’s income tax framework, promising faster refunds, seamless digital assessments, and a clearer structure under the new Income Tax Act, 2025.

As a property consultant, I’d say: take advantage of these changes, plan your property deductions, optimize tax based on occupancy type, and recalibrate strategies if you’re an NRI selling property. Want to navigate these tax shifts with expert guidance? Explore listings, book a consultation with Housivity’s tax-savvy advisors, or browse our property portfolio tailored to these tax benefits. Your real estate journey just got smarter.