Budget 2024 regulation mandates that rental income be reported under ‘Income from house property,’

Finance Minister Nirmala Sitharaman announced during the Union Budget presentation that property owners can no longer declare rental income as business income. The new regulation mandates that rental income be reported under ‘Income from house property,’ thus closing a loophole that previously allowed taxpayers to reduce their tax liabilities by misclassifying their income.

Tax experts have welcomed this change, anticipating a reduction in litigation and greater consistency in tax reporting. With this amendment, owners providing services such as cleaning and lodging alongside rental accommodations will now face higher taxes as they can no longer claim all expenses associated with business income.

Finance Minister Sitharaman highlighted that some taxpayers were misreporting rental income as ‘profits and gains of business or profession,’ significantly lowering their tax liabilities. The amendment, effective from April 1, 2025, aims to ensure that rental income is correctly categorized, fostering a more stable and predictable tax environment. Gaurav Karnik of EY India and Hemal Mehta of Deloitte India expressed support for this clarity, emphasizing its role in reducing disputes and establishing uniform tax treatments.

The new rule specifies that income from residential leases, including services like breakfast and laundry, must be reported under ‘Income from house property.’ Vivek Jalan of Tax Connect Advisory pointed out that this will impact taxability, limiting property owners to standard deductions and taxes paid, rather than all business expenses.

Prabhakar K S from Shree Tax Chambers noted that this anti-avoidance measure ensures income from property leasing is taxed correctly. Mumbai-based CA Aditya Zantye added that the amendment to Section 28 addresses the misclassification issue, increasing tax revenue by closing the exploited loophole.

Clarification on TDS for Property Sales

Budget 2024 also clarified that a 1% Tax Deduction at Source (TDS) will apply to the sale of immovable property valued at ₹50 lakh or more, even when involving multiple buyers and sellers. This amendment, effective from October 1, 2024, ensures that TDS is calculated on the total property consideration, not just individual payments, aligning with legislative intent.

The government’s document explained that Section 194-IA of the Act mandates TDS on payments for transferring immovable property (excluding agricultural land), correcting misinterpretations that avoided TDS when individual payments were below ₹50 lakh despite the total property value exceeding this threshold.

These amendments underline the government’s commitment to streamlining tax regulations, ensuring fair taxation, and enhancing revenue through accurate reporting and compliance.