Budget 2025 has brought good news to the middle class, exempting those earning up to ₹12 lakh under the new tax regime. Additionally, there are two key changes aimed at easing the compliance burden:
Tax-Free Second Home – Homeowners can now claim nil valuation for two self-occupied properties instead of one.
Higher TDS Threshold on Rent – The TDS deduction limit on rent paid by non-individuals has been raised from ₹2.4 lakh to ₹6 lakh, benefiting both tenants and landlords.
These reforms simplify taxation and encourage homeownership while reducing financial strain.
Tax Relief For Second Self-Occupied House
Budget 2025 has brought relief for homeowners who have multiple properties. Previously, an individual could designate only one property as self-occupied. This introduced the concept of ‘deemed rental income’ for any additional self-occupied properties. This meant that even if a homeowner was not earning any rent from a second home (which could be occupied by family members), he still had to pay tax on the notional rental value. This led to an unnecessary tax burden.
Now, homeowners can claim two properties as self-occupied. Thus, they do not need to pay taxes on deemed income from the second property.
“Previously, homeowners could claim only one self-occupied property as tax-free; now, they can claim two – thereby removing taxation on notional rental income from a second home. This step minimises tax pressures, promotes homeownership, and facilitates real estate investment, especially in second homes and Tier 2 and 3 cities,” says Anuj Puri, Chairman – ANAROCK Group, a real estate services company.
Let us consider the case of Soumya Das, a Mumbai resident who owns two properties in Mumbai and Kolkata. He lives in Mumbai with his wife and two children, and his parents live in his Kolkata property. So, both properties are self-occupied.
Before this budget, his Kolkata property was considered to have ‘deemed rental income’ of ₹40,000 a month or ₹4.8 lakh a year. Das had to pay an income tax of ₹4.8 lakh even though he did not receive a single rupee as rent from the apartment.
Since Budget 2025 allows two properties to be considered self-occupied, ₹4.8 lakh will no longer be regarded as deemed rental income. Das would thus not need to pay income tax on this income. This also frees him from calculating and reporting deemed rental income.
Rent TDS Threshold Revised to ₹6 Lakh
Earlier, if a tenant paid rent exceeding ₹2.4 lakh annually, he was required to deduct tax deducted at source (TDS). The tenant had to deduct the TDS before the rent was paid. After deducting the TDS, the tenant could obtain a TDS certificate. The landlord could use this certificate to claim a deduction when filing taxes. Now, that limit has been increased to ₹6 lakh.
Let us take the example of Kolkata-based Anil Ghosh, who owns a property that generates ₹40,000 monthly rent. Previously, the tenant would have to deduct TDS at the rate of 10 per cent on the rent paid. So Singh would receive ₹36,000 as rent. Singh could claim it when filing his taxes, but that would mean paperwork and potential delays. Now, with the TDS limit increased to ₹6 lakh, there will be no TDS deductions, and thus, Singh’s immediate cash flow will increase.
“This will reduce the tax burden on smaller taxpayers who are into the business of renting out smaller premises for their living and thus enjoy higher disposable income. Also, this aims to bring in operational efficiencies as the number of TDS transactions will reduce,” says Vimal Nadar, Senior Director and Head of research at Colliers India.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics