House property tax rules may change: What to expect in the Income Tax Bill 2025

The Lok Sabha Select Committee has recommended two major amendments to the Income-tax Bill, 2025, aimed at bringing clarity and fairness to the taxation of income from house property. These changes, if implemented, would align the new tax code with the existing practices under the Income-tax Act, 1961, and avoid potential hardships for property owners.

What are the proposed changes?

As per the Committee’s report dated July 21, 2025, the two key recommendations relate to:

How the standard 30% deduction is calculated

Extending the deduction of home loan interest for let-out properties

If you’re a homeowner who has purchased a residential property using a home loan, you’re eligible for tax deductions on both the principal and interest components of the loan. However, the recent amendments proposed by the Lok Sabha Select Committee specifically address cases where such a property is rented out (let-out property).

As per the Committee’s press release, these deductions—particularly the standard deduction after municipal taxes and the deduction of pre-construction interest—already existed under the Income Tax Act, 1961. However, the draft version of the Income Tax Bill, 2025 did not clearly carry forward these provisions. To avoid confusion and maintain consistency with the current law, the Committee has now recommended that these provisions be explicitly included in the revised Bill.

Under the current Income Tax Act, 1961, homeowners can claim deductions for municipal taxes, a 30% standard deduction (after municipal taxes), and home loan interest, including pre-construction interest.

1. Standard Deduction on Net Annual Value

The first amendment relates to Clause 22(1)(a) of the draft Bill. The original language in the Income-tax Bill, 2025, allowed a 30% standard deduction on the “annual value” of a property but did not clarify whether this deduction applied before or after subtracting municipal taxes.

This ambiguity raised concerns that the new provision might allow the deduction on the gross annual value (GAV) rather than the net annual value—a move that would have deviated from current law and unfairly increased the tax burden.

As explained by CA Dr Suresh Surana, under the current Income-tax Act, the computation begins by reducing municipal taxes paid by the owner from the gross annual value to arrive at the net annual value. A 30% deduction is then applied to this net value to account for repairs and maintenance.

To avoid misinterpretation, the Committee has recommended amending Clause 22(1)(a) to explicitly state that the 30% deduction should be calculated after deducting municipal taxes, thus restoring consistency with the current law.

2. Deduction for pre-construction interest allowed on Let-out properties

The second major change concerns Clause 22(2), which deals with home loan interest deductions, particularly for loans taken to acquire or construct house property.

Under Section 24(b) of the existing Act, interest paid for the pre-construction period is eligible for deduction in five equal annual instalments once the construction is completed. Importantly, this benefit applies regardless of whether the property is self-occupied or let-out.

However, the draft IT Bill 2025 proposed this deduction only for self-occupied properties, ignoring rented or deemed-to-be-let-out properties. This omission would have imposed an undue burden on taxpayers with rental income.

The Select Committee flagged this as a serious inconsistency and has recommended that Clause 22(2) be amended to restore parity. The revised Bill now extends the deduction for pre-construction interest to let-out properties as well, aligning it with the current tax framework and ensuring fair treatment across all types of ownership.

Impact on taxpayers

These two amendments aim to:

Prevent increased tax liability due to misinterpretation of standard deduction rules

Ensure equity in tax benefits for both self-occupied and rented properties

Avoid disruption for property owners familiar with existing tax treatment

In short, the Select Committee’s suggestions are meant to uphold fairness, clarity, and continuity in how income from house property is taxed under the upcoming tax regime.