The Union Budget 2026 proposed targeted amendments to the rules governing Income from House Property, effective April 1, 2026, bringing the Income-tax Act, 2025, in line with established practices under the 1961 Act.
These revisions aim to clarify the computation framework for specific property categories and eligible deductions, offering notable benefits to real estate developers and homeowners with housing loans.
Replacement of the Income Tax Act
Effective April 1, 2026, the Income Tax Act, 1961 will be officially repealed and superseded by the Income Tax Act, 2025.
A key reform is the introduction of the unified “Tax Year” concept, replacing the earlier terminology of “Assessment Year” and “Previous Year.” The Tax Year will now align directly with the financial year (April–March).
In a structural shift, provisions governing Income from House Property—previously covered under Sections 22 to 27 of the 1961 Act—have been renumbered and now appear under Sections 20 to 25 of the new Act.
Clarification on the ₹2 Lakh Interest Cap
A key amendment introduced in the Finance Bill 2026 pertains to Section 22(2) of the new Act, the re-enacted version of erstwhile Section 24(b).
The amendment addresses long-standing ambiguity around the treatment of preconstruction interest. Previously, it was unclear whether the ₹2 lakh deduction cap for self-occupied properties included interest paid during the pre-construction period, which is currently allowable in five equal annual instalments.
The revised provision now explicitly clarifies that the total deduction, comprising the current year’s interest plus one-fifth of the pre-construction interest, cannot exceed ₹2 lakh for self-occupied properties.
Standard Deduction (30%)
The 2025 Act provides clarity on the calculation of the 30% standard deduction, specifying that it is to be computed on the Net Annual Value (NAV) defined as the Gross Annual Value less municipal taxes actually paid by the owner.
This deduction continues to serve as a flat allowance for repairs and maintenance, irrespective of actual expenditure incurred. However, it is not available under the New Tax Regime in the case of self-occupied properties.
New Tax Regime vs. Old Tax Regime
The 2026 rules further reinforce the separation between the two tax regimes: New Tax Regime (Default): For self-occupied properties, no deduction is available for interest paid under Section 22(2), and losses from house property cannot be set off against other income, such as salary, under this regime.
Old Tax Regime: All existing benefits, including the ₹2 lakh interest deduction and Section 80C deduction for principal repayment, remain available. However, taxpayers must explicitly opt into this regime.
Procedural Changes: PAN & TDS
PAN Requirement for Property Transactions: The mandatory threshold for quoting PAN on property purchases or sales has been raised from ₹10 lakh to ₹20 lakh. TDS on Purchases from NRI Sellers: Individual buyers acquiring property from a Non-Resident Indian (NRI) may now use their own PAN to deduct and deposit TDS, eliminating the earlier requirement to obtain a Tax Deduction and Collection Account Number (TAN). This significantly simplifies compliance for individual purchasers.
House Property at a Glance (From April 2026)
| Feature | Old Tax Regime | New Tax Regime (Default) |
| Self-Occupied Interest | Deductible up to ₹2 Lakh | No Deduction |
| Let-out Property Interest | Fully Deductible | Deductible (but no loss set-off) |
| Standard Deduction (30%) | Available | Available (for Let-out only) |
| Loss Set-off | Allowed up to ₹2 Lakh | Not Allowed |
| Pre-construction Interest | Included in ₹2 Lakh cap | No Deduction |
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