Income from House Property under Income Tax Act 2025 (Sections 20–25)
Day 5 of 15 Days Income Tax Act 2025 Series – Complete & Practical Guide
By CA Devesh Thakur
Introduction: Why “Income from House Property” Confuses Most Taxpayers
Across the world, income from real estate is taxed differently.
In India, one of the most misunderstood heads of income is “Income from House Property”.
Many people believe:
- tax is charged only if rent is received, or
- self-occupied houses are always tax-free, or
- all property expenses are deductible
All three assumptions are wrong.
The Income Tax Act, 2025, continues the well-established framework under Sections 20 to 25, but with clearly defined rules that every student, salaried person, investor, landlord, and NRI must understand.
This article explains the concept step-by-step, with logic, not jargon.
1. What Is Taxed Under “Income from House Property”? (Section 20)
Ownership Is the First Condition
Income is taxable under this head only if the assessee is the owner of the property.
It does not matter:
- who constructed it
- who paid for it
- who is living in it
👉 Ownership is the key trigger for taxability.
What Type of Property Is Covered?
- Buildings (residential or commercial)
- Land appurtenant to buildings (parking, compound, garden)
Vacant land alone is not covered.
Business Use Is Excluded
If a property (or part of it) is used by the owner for:
- business, or
- profession
then that portion does not fall under House Property.
Its income or value is considered under Business or Professional Income.
2. The Core Concept: Annual Value (Section 21)
One of the biggest mistakes students make is assuming that rent = taxable income.
That is incorrect.
Tax Is Charged on “Annual Value”, Not Rent
2.1 Normal Rule of Annual Value (Section 21(1))
Annual Value is the higher of:
- Expected Rent (reasonable market rent), OR
- Actual Rent received or receivable
This rule applies when the property is let.
2.2 Vacancy Allowance (Section 21(2))
If:
- the property was actually let, and
- it remained vacant for part or whole of the year, and
- due to vacancy, actual rent is lower than expected rent
👉 Annual Value = Actual Rent only
This provision ensures taxpayers are not unfairly taxed for genuine vacancy.
2.3 Municipal / Local Taxes (Section 21(3))
- Deductible only if:
- paid by the owner, and
- actually paid during the tax year
Unpaid or accrued municipal taxes are not allowed as deduction.
2.4 Unrealised Rent (Section 21(4))
Rent that cannot be realised from a tenant:
- is excluded from actual rent,
- subject to prescribed conditions and rules
2.5 Property Held as Stock-in-Trade (Section 21(5))
For builders and developers:
- Unsold property held as stock-in-trade
- Not let during the year
👉 Annual Value is NIL for two years from the end of the financial year in which completion certificate is obtained.
3. Self-Occupied Property (Sections 21(6) & 21(7))
When Is Annual Value NIL?
Annual Value is taken as NIL if:
- the property is used for own residence, or
- the owner cannot occupy it due to any reason
Important Restriction
- NIL benefit is allowed for maximum two houses
- Assessee must choose which two houses qualify
The benefit is not available if:
- the house is let for any part of the year, or
- any other benefit is derived from it
4. Deductions from Income from House Property (Section 22)
This section is very strict.
⚠️ Only three deductions are allowed. Nothing else.
4.1 Standard Deduction – 30%
- Flat 30% of Annual Value
- Allowed regardless of actual expenditure
- Covers repairs, maintenance, painting, etc.
4.2 Interest on Borrowed Capital
Allowed if loan is taken for:
- purchase
- construction
- repair, renewal or reconstruction
For Self-Occupied Property:
- ₹2,00,000 maximum if:
- construction/acquisition completed within 5 years
- interest certificate furnished
- ₹30,000 in other cases
The aggregate interest deduction for self-occupied houses cannot exceed ₹2,00,000.
4.3 Pre-Construction Interest
Interest paid before completion of construction:
- aggregated, and
- allowed in five equal instalments
Starting from the year in which construction is completed.
Special Restriction
Interest payable outside India is not allowed if:
- tax is not deducted at source, and
- there is no agent in India
5. Arrears of Rent & Unrealised Rent Received Later (Section 23)
- Taxable in the year of receipt
- Taxable even if the assessee is not the owner in that year
- Flat 30% deduction allowed
This ensures income does not escape taxation due to timing differences.
6. Co-Owned Property (Section 24)
When a property is co-owned and:
- shares are definite and ascertainable
Then:
- co-owners are not treated as AOP
- income is taxed separately in each co-owner’s hands
- self-occupied relief applies individually
7. Who Is Considered “Owner”? (Section 25)
The Act adopts an extended meaning of ownership.
Owner includes:
- transferor to spouse or minor child without consideration
- allottee in a housing society or company
- person in possession under part performance (Section 53A)
- person having long-term rights (12 years or more)
👉 Legal title is not decisive.
👉 Enjoyment and control matter more.
Practical Takeaways for Students & Taxpayers
- Taxability depends on ownership, not rent receipt
- Annual Value is the foundation of computation
- Self-occupied benefit is limited and conditional
- Only three deductions are allowed—no creativity
- Understanding “owner” avoids major litigation issues
Conclusion
“Income from House Property” is not about rent alone.
It is about ownership, valuation logic, and statutory deductions.
Once these three pillars are clear, the entire chapter becomes predictable and scoring—both in exams and real-life tax planning.
