New Income Tax Bill Changes: The Lok Sabha on Monday passed the new Income Tax Bill, 2025, marking a significant shift from India’s six-decades-old direct tax framework. Once enacted, the bill, introduced by Finance Minister Nirmala Sitharaman, will formally replace the Income Tax Act, 1961, with a modernised legal framework designed to align with evolving economic realities. The bill will now be sent to the Rajya Sabha for approval and then to the president for assent, at which point it will become law.
The new Income Tax bill was introduced in Parliament in February and was sent for review to a Select Committee, chaired by BJP MP Baijayant Panda. The panel submitted its report on July 21 after a detailed examination of the provisions, and it suggested 285 recommendations. The new bill reduces the size and complexity of the current Income Tax Act, drastically cutting the number of sections and chapters and nearly halving the word count.
In addition to easing complexities, the new bill also has provisions regarding the taxation of income from house property. In this article, we will discuss those key changes and how they affect the house property income rules.
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Standard Deduction Clarification
Under Clause 21, the bill now clearly states that there will be a 30% deduction calculated on the net annual value. This value is the outcome of subtracting the municipal taxes from the annual value, as outlined in the same clause. In the previous draft, it was unclear whether this deduction would be applied before or after municipal taxes were subtracted, leading to concerns that it could be calculated on the gross annual value. The Lok Sabha Select Committee recommended this amendment to ensure fairness and align the new law with existing provisions under Sections 23 and 24 of the Income Tax Act, 1961.
Pre-Construction Interest Benefit
Previously, when a loan was taken out to buy or build a house, the interest paid was a tax deduction. This included pre-construction interest—the interest paid before the house was finished—which could be deducted over five years. The new bill initially proposed a change, stating that this deduction was only available if the taxpayer lived in the house themselves, not if they rented it out.
However, the Select Committee reviewed this proposal and recommended that the rule should remain the same as before, allowing taxpayers to deduct the interest whether they live in the house or rent it out. The latest bill aligns with this recommendation.