Income from House Property under
the Income-tax Act, 2025:
Section-wise Analysis (Sections 20-25)

Introduction

The Income-tax Act, 2025, effective from 1st April 2026, retains the classical heads of income while presenting them in a simplified, modernized framework. One of the most significant heads of income is "Income from House Property", which deals with taxation of income arising from ownership of buildings and lands appurtenant thereto.

This head of income is rooted in the principle that ownership itself gives rise to a taxable capacity, regardless of actual rent received, subject to prescribed rules and deductions. It ensures that both actual rental income and notional income (annual value) from property ownership are fairly brought to tax, while also providing reliefs and deductions to prevent hardship and avoid double taxation (such as in cases of business use or self-occupation).

In the 2025 Act, provisions relating to house property are primarily contained in Sections 20 to 25. These sections cover:

•   the charging section (what is taxable),

•   scope of exemptions (for business use or self-occupied property),

•   determination of annual value,

•   deductions available, and

•   special situations such as vacancy or co-ownership.

In this article, we present a section-wise analysis of Sections 20 to 25, highlighting their substance, comparison with the Income-tax Act, 1961, and their practical implications for taxpayers.

Section 20 - Income from House Property

Section 20 serves as the charging section for the head "Income from House Property" under the Income-tax Act, 2025.

•  Sub-section (1): The annual value of property consisting of any buildings or lands appurtenant thereto, owned by the assessee, shall be chargeable to tax.

•  Sub-section (2): An exception is provided where such property (or part thereof) is used by the assessee for carrying on their own business or profession, the profits of which are chargeable to tax. In such cases, the relevant portion is not taxed under house property.

Practical Example

•    Mr. A owns a two-storey building.

      Ground floor: Used as his medical clinic (business).

      First floor: Let out on rent.

•    Tax treatment: Rent from the first floor taxed under "House Property," while the ground floor is excluded since it is used for business.

Section 21 - Determination of Annual Value

Section 21 elaborates how to compute the annual value (AV) of property for taxation under Section 20. The key rules are:

1. General Rule (Sub-sec. 1):
    Annual value = Higher of:

    (a)  Reasonable expected rent (fair rent), or

    (b) Actual rent received/receivable.

2.   Vacancy Allowance (Sub-sec. 2):

      If the property was vacant during the year and due to such vacancy, actual rent < fair rent, then actual rent received/receivable shall be deemed the AV.

3.  Deduction of Local Taxes (Sub-sec. 3):

     AV is reduced by municipal/local authority taxes actually paid by the owner during the tax year, regardless of the year of levy.

4.   Unrealised Rent (Sub-sec. 4):

     Rent that cannot be realised (subject to prescribed rules) shall not be included in actual rent received/receivable.

5.      Property Held as Stock-in-Trade (Sub-sec. 5):

         If not let at all during the year, AV = Nil for 2 years from the end of the year in which the completion certificate is obtained.

6.      Self-Occupied Property (Sub-sec. 6):

        If a house is self-occupied or cannot be occupied for any reason, AV = Nil.

7.      Restriction for Self-Occupation (Sub-sec. 7):

•  Nil AV is allowed only for 2 houses, as specified by the assessee.

•   If a house (or part thereof) is actually let or other benefit is derived, Nil AV will not apply.

Impact

Section 21 codifies the practical computation of annual value, balancing equity (vacancy allowance, self-occupation benefit) with anti-avoidance (fair rent principle). It provides continuity with the 1961 Act (Sec. 23) but in a simplified and clarified manner, reducing disputes and litigation.

Practical Examples

•   Vacancy relief: A flat with fair rent of Rs. 2,00,000 but only Rs.1,20,000 actually received due to 6-month vacancy _ AV = Rs.1,20,000.

•   Self-occupation: Mr. B owns 3 houses; he designates 2 as self-occupied (Nil AV), while the 3rd is deemed let-out and taxed at fair rent.

•   Builder`s stock: A real estate developer holds 10 unsold flats for 1 year after completion _ AV = Nil for that period.

Section 22 - Deductions from Income from House Property

This section provides the specific deductions allowed while computing income chargeable under the head "Income from House Property."

1.   Standard Deduction [Sub-sec. (1)(a)]:

•   Flat 30% of annual value (as determined under Section 21).

•   No linkage with actual expenditure; available irrespective of whether expenses are incurred.

2. Interest on Borrowed Capital [Sub-sec. (1)(b)]:

•  Deduction allowed for interest payable on borrowed capital used for acquisition, construction, repair, renewal, or reconstruction of the property.

3.  Pre-construction Interest [Sub-sec. (1)(c)]:

•  Interest payable for the period prior to the year of acquisition/construction can be claimed in five equal instalments starting from the year of completion and the next four years.

4.  Cap on Interest Deduction for Self-occupied Property [Sub-sec. (2)]:

• Deduction under (1)(b) restricted to:

(a) Rs.2,00,000 - if property acquired/constructed with borrowed capital and completed within 5 years from end of year of borrowing + certificate produced.

(b) Rs.30,000 - in any other case.

5.   Adjustment of Pre-construction Interest [Sub-sec. (3)]:

•   Pre-construction interest deduction is reduced by any amount already claimed elsewhere under the Act.

6.  Certificate Requirement [Sub-sec. (4)]:

•  Certificate must specify:

(a) Interest payable on borrowed capital.

(b) Interest payable on new loan taken to repay earlier borrowed capital.

7.  Overall Cap [Sub-sec. (5)]:

•  The aggregate deduction for self-occupied properties [covered under Section 21(6)] shall not exceed Rs.2,00,000.

8. Interest Payable Outside India [Sub-sec. (6)]:

•  No deduction allowed if:

(a) Tax is not paid/deducted under TDS provisions (Chapter XIX-B).

(b) There is no agent in India as per Section 306.

Impact

Section 22 provides reliefs that are cornerstone features of taxation of house property:

•  30% standard deduction ensures simplified computation.

•  Interest deduction incentivizes home ownership.

• Caps & compliance conditions maintain discipline and reduce misuse.

Overall, Section 22 continues the legacy of Section 24 of the 1961 Act, but with refined language, clearer compliance, and alignment with global tax rules.

Practical Examples

Case 1 (Let-out Property):

Mr. X owns a house let out with AV of Rs. 6,00,000.

Standard deduction (30%): Rs.1,80,000.

Interest on loan: Rs.2,20,000.

_ Taxable Income = 6,00,000 - 1,80,000 - 2,20,000 = Rs.2,00,000.

Case 2 (Self-occupied Property):

Mrs. Y borrowed Rs.50 lakhs in 2019; completed house in 2025. Interest Rs.2,80,000.

Deduction restricted to Rs.2,00,000 (since completed within 5 years).

Case 3 (Foreign Loan):

Mr. Z borrowed from a foreign bank, pays Rs.3,00,000 interest, but no TDS deducted in India and no agent appointed.

No deduction allowed under Section 22(6).

Section 23 - Arrears of Rent and Unrealised Rent Received Subsequently

1. Chargeability [Sub-sec. (1)]:

•  Any arrears of rent received from a tenant, or previously unrealised rent later recovered, shall be deemed income from house property in the year of receipt/realisation, regardless of the year to which it relates.

2. Independence from Ownership [Sub-sec. (2)]:

•  Such rent is taxed even if the assessee is not the owner of the property in the year of receipt.

•  Example: If a landlord sells a house but later recovers old arrears, those arrears are still taxable as their income in the year of recovery.

3. Deduction [Sub-sec. (3)]:

•  A flat deduction of 30% of the arrears/unrealised rent is allowed, mirroring the standard deduction under Section 22.

Impact

Section 23 ensures that arrears and previously unrealised rent are brought to tax fairly when received, with reasonable relief via the 30% deduction. By combining provisions of old Sections 25A and 25B into one concise section, the 2025 Act reduces complexity and makes the law easier to interpret.

Practical Examples

Case 1 (Arrears of rent):

•  Mr. A let out a flat for `20,000/month in 2022-23. The tenant defaulted for 3 months. In 2025-26, Mr. A recovers Rs.60,000 arrears.

_ Taxable in 2025-26 under "House Property" as arrears of rent. Deduction: 30% (Rs.18,000). Net taxable = Rs.42,000.

•  Case 2 (Unrealised rent recovered after ownership change):

Ms. B sold her property in 2024-25. In 2025-26, she recovers Rs.1,20,000 unrealised rent for earlier years.

•  Even though no longer owner, taxable as her income in 2025-26 with 30% deduction.

Section 24 - Property Owned by Co-owners

1.  Separate Assessment of Co-owners [Sub-sec. (1)]:

•  Where property is co-owned and the shares of co-owners are definite and ascertainable, the co-owners will not be assessed as an AOP (Association of Persons).

•  Instead, income will be computed separately for each co-owner according to their respective share and then included in their total income.

2. Self-occupied Property Relief [Sub-sec. (2)]:

•  The relief of Nil Annual Value under Section 21(6) (self-occupied property) shall be available individually to each co-owner.

• Effectively, each co-owner can claim exemption for up to two self-occupied houses in their share, subject to overall conditions.

Impact

Section 24 preserves the fairness principle: tax follows ownership share. By making relief under Sec. 21(6) explicitly available to each co-owner, the new Act eliminates ambiguity and simplifies compliance for co-owned properties - a common scenario in India due to inheritance and joint investments.

Practical Examples

•   Case 1 (Definite shares):

Mr. A and Mrs. B co-own a property 50:50. Rent = Rs.6,00,000.

_ Each reports Rs.3,00,000 under "House Property" in their returns.

•   Case 2 (Self-occupied property):

Mr. X and his brother co-own a flat equally, both using it for residence.

_ Each can claim Nil Annual Value for their 50% share under Sec. 21(6).

•   Case 3 (Indefinite shares):

Four siblings inherit a property without a specified share.

_ Income taxed as AOP (not under individual ownership rules).

Section 25 - Interpretation

This section expands the meaning of "owner" beyond the strict legal owner of property, ensuring taxation applies to those enjoying the benefits of ownership. The following are deemed to be owners:

1.  Transfers without Adequate Consideration [Clause (a)]:

•  An individual transferring property to:

•  Spouse (unless under legal separation agreement), or

•   Minor child (other than a married daughter).

•   Ensures income is still taxed in hands of transferor, preventing tax avoidance.

2. Holder of Impartible Estate [Clause (b)]:

•  Holder is deemed to be the individual owner for all estate properties.

3.  Allottees of Societies/Companies/AOPs [Clause (c)]:

•   Members to whom a building (or part) is allotted/leased under a housing scheme are deemed owners, even without registered ownership.

4. Possession under Part-performance [Clause (d)]:

•  Persons in possession under Section 53A of the Transfer of Property Act, 1882 (part-performance contracts) are treated as owners.

5.   Persons Acquiring Long-term Rights [Clause (e)]:

(i) By sale, exchange, or lease of `12 years (excluding month-to-month or ?1 year lease).

(ii) By arrangements (shares, society membership, agreements) enabling enjoyment of property, even if not through sale/lease.

Impact

Section 25 ensures taxation follows beneficial enjoyment of property, not just narrow legal ownership. This prevents avoidance and reflects economic reality. By aligning with old Sec. 27 of the 1961 Act, the 2025 Act continues the principle of deemed ownership, while using simplified drafting for better clarity.

Practical Examples

•   Case 1 (Transfer to spouse):

Mr. X gifts a house to his wife without consideration. Rent Rs.3,60,000 annually.

_ Deemed owner = Mr. X. Rent taxable in his hands, not wife`s.

•   Case 2 (Cooperative society allottee):

Mrs. Y allotted a flat under a housing society scheme, though society retains legal title.

_ She is treated as owner for tax purposes.

•  Case 3 (Part-performance):

Mr. Z takes possession under an unregistered agreement as per Sec. 53A, pays consideration but registry pending.

_ He is deemed the owner.

•  Case 4 (Long lease):

A company takes a property on 15-year lease with upfront payment.

_ Company deemed owner under Sec. 25(e)(i).