Income Tax Updates Affecting Homebuyers from April 1, 2025
The Budget 2025 has introduced favorable changes for both homeowners and prospective buyers, set to take effect on April 1, 2025. Here’s a closer look at how these changes will impact individuals in the housing market.
According to Hemal Mehta, Partner at Deloitte India, “Currently, the annual value of a self-occupied property is considered NIL. Should a homeowner be unable to occupy their property for valid reasons, such as work commitments elsewhere, the annual value of any additional properties is also regarded as NIL under Budget 2025—this was not the case prior to this amendment.”
This adjustment brings significant relief for homebuyers, allowing them the flexibility to own two self-occupied properties without incurring additional income tax under the ‘income from house property’ category.
For instance, if a homeowner wants to sell a larger house to purchase two smaller units nearby (perhaps due to family downsizing), “they can benefit from section 54 exemption on any capital gains from selling the larger property and also enjoy the NIL annual value advantage for the two new units,” Mehta explains.
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Changes to Section 194-I of the Income Tax Act, 1961
Under the current provisions of Section 194-I, entities other than individuals or Hindu Undivided Families that pay rent exceeding ₹2,40,000 annually must deduct tax at source (TDS).
To enhance the efficiency of this rule, the proposal suggests raising the TDS threshold from ₹2,40,000 per year to ₹50,000 per month or any partial month, as Suresh Surana, a chartered accountant based in Mumbai, notes.
This change will be effective on April 1, 2025, contingent upon the passage of the Finance Act 2025. For example, a person renting out office space for ₹45,000 monthly would currently need to pay 10% TDS, as the annual rent exceeds ₹2,40,000, amounting to ₹54,000. With the upcoming amendment, since the monthly rent is below the new limit, no TDS will be required from April 1.
Tax Exemptions for Income Up to ₹12 Lakh
With the proposal to keep income up to ₹12 lakh tax-free, individuals earning this amount will realize an additional saving of ₹80,000 under the revamped tax regime starting April 1. For instance, Mr. Singh, earning ₹12 lakh, could save the full ₹80,000, affording him an extra EMI of approximately ₹6,600. This boost enables him to consider purchasing a more expensive home.
If his previous EMI was ₹40,000 at an 8.75% interest rate, he could afford a property valued at around ₹45-50 lakh. With the revised EMI of ₹46,000, he can now target a property worth between ₹52-58 lakh as the new financial year unfolds. Additionally, following a 25 bps reduction in interest rates by the RBI during its latest policy meeting, borrowing costs are expected to decrease slightly.
SWAMIH Fund-2 to Support Homebuyers
In Budget 2025, the finance minister introduced the SWAMIH Fund-2, aimed at providing relief to troubled housing projects. The first SWAMIH fund successfully completed 50,000 stalled projects, assisting homebuyers who were making EMIs on incomplete properties while also paying rent.
With the launch of SWAMIH Fund-2, the government intends to finalize an additional 40,000 units in 2025, thereby benefiting middle-class homebuyers significantly.
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