Tax Free Second Home and Revised TDS Limit on Rental Income: Budget 2025 Eases Tax Burden for Homeowners
The Union Budget 2025 has introduced significant tax relief measures for homeowners and tenants, making property ownership and rental more affordable. The key highlights include allowing tax exemption on two self-occupied properties instead of one and raising the TDS deduction threshold on rent from ₹2.4 lakh to ₹6 lakh. These reforms aim to reduce the financial burden on middle-class taxpayers and streamline compliance.
Tax-Free Second Home: A Big Win for Homeowners
Until now, homeowners could only claim one self-occupied property as tax-free. Any additional property owned by an individual was subjected to ‘deemed rental income’—a notional value taxed even if no actual rent was earned.
With Budget 2025, this rule has changed. Homeowners can now declare two properties as self-occupied, eliminating tax on deemed rental income from the second home. This move will particularly benefit those owning homes in different cities due to work commitments or family responsibilities.
Take the case of Amit Verma, a Mumbai resident who owns properties in Mumbai and Kolkata. While he lives in Mumbai, his parents stay in the Kolkata home. Under previous tax rules, his Kolkata property was considered to generate an annual rental income of ₹4.8 lakh, even though he did not earn a rupee from it. Das had to pay tax on this amount.
Now, with the new exemption, he will no longer need to declare this as income, reducing his tax burden significantly. Experts believe this will encourage homeownership, particularly in Tier 2 and Tier 3 cities, and boost the real estate sector.
Higher TDS Exemption on Rent: Relief for Tenants and Landlords
Another major tax reform in Budget 2025 is the increase in the TDS (Tax Deducted at Source) exemption limit on rental payments. Previously, tenants paying an annual rent of more than ₹2.4 lakh (₹20,000 per month) had to deduct TDS before paying their landlord. This process required paperwork, tax filings, and often led to cash flow disruptions for landlords.
Now, the threshold has been raised to ₹6 lakh per year (₹50,000 per month), meaning many rental transactions will no longer attract TDS deductions.
For instance, Ravi Sharma, a property owner in Kolkata, earns ₹40,000 per month in rental income. Under the old system, his tenant would deduct 10% TDS, leaving him with ₹36,000 in hand. He could claim this deducted amount while filing taxes, but it added complexity and delayed cash flows. With the revised ₹6 lakh limit, Ghosh will now receive the full ₹40,000 every month, improving his liquidity.
Expert Insights on the Reforms
Experts from the real estate sector have welcomed these changes.
- Anuj Puri, Chairman of ANAROCK Group, said, “This tax relief will promote homeownership and investment in second homes, particularly in growing urban centers.”
- Vimal Nadar, Senior Director at Colliers India, added, “Raising the TDS threshold will reduce compliance burdens and improve cash flows for small landlords, benefiting the rental market.”
A Boost for Middle-Class Taxpayers
In addition to these property-related reforms, Budget 2025 has also exempted individuals earning up to ₹12 lakh annually under the new tax regime. The combination of higher tax exemptions, reduced rental compliance, and tax-free second homes signals a pro-middle-class approach, easing financial pressures and simplifying tax filings.
These measures are expected to make real estate investment more attractive, benefiting homeowners, tenants, and landlords alike.
