Income from House Property – Sec 20- Easy Guide

Income from house property is one of the five major heads of income under the Income Tax law. A large number of assessees have to comply with the rules regarding the taxation of income from house property whether it is a self occupied property or in the form of rental income. With the introduction of the new Income Tax Act, 2025, let us navigate to understand the existing as well as future laws governing the taxation of the income from house property.

Income From House Property – Section 20 of Income Tax Act, 2025

As per Section 20 of the Income Tax Act, 2025, the annual value of property consisting of any buildings or land appurtenant thereto, owned by the assessee shall be chargeable to income tax under the head ‘income from house property’. However, the same will not be applicable for properties or part of any property used by the assessee for his business or profession, the profits of which are chargeable to income tax.

This section as per the new Income Tax Act, 2025 is very similar to the erstwhile Section 22 of the Income Tax Act, 1961 and there are no changes between the two sections.

Determination of annual value

As per Section 20 of the Income Tax Act, 2025 (erstwhile section 22 of the Income Tax Act, 1961), the taxation under the head income from house property is based on the annual value of the property. Therefore, the most crucial component of the taxation under this head will be the correct determination of the annual value of the property.

Under Section 21 of the Income Tax Act, 2025 (erstwhile section 23 of the Income Tax Act, 1961), the annual value of any property shall be deemed to be the higher of the following –

• The sum for which it might reasonably be expected to let from year to year; or
• The actual rent received or receivable by the owner, if the property or any part of the property is let out.

However, the rent which cannot be realized by the owner shall not be included in computing the actual rent received or receivable subject to certain rules of income from house property computation.

Income from House Property – Annual Value reduced by taxes

As per Section 21(3) of the Income Tax Act, 2025, the annual value for income from house property as determined above will be reduced by the taxes (including service taxes) levied by a local authority in respect of such property, actually paid during the tax year by the owner, irrespective of when such taxes became payable.

Tax on rental income in case of vacancy

As per Section 21 of the Income Tax Act, 2025 (erstwhile section 23 of the Income Tax Act, 1961), if the property or any part of it is let and was vacant for the whole or any part of the tax year and owing to such vacancy the actual rent received or receivable by the owner is less than the amount that was reasonably expected, the annual value of such property shall be deemed to be the amount so received or receivable.

Conditions where the rental income is nil

Under Section 21 of the Income Tax Act, 2025 (erstwhile section 23 of the Income Tax Act, 1961), the annual value of house property or any part thereof shall be taken as nil under the following 2 circumstances –

• If the owner occupies it for his own residence  i.e. self occupied property, or,
• If the property cannot be occupied due to any reason.

The abovementioned circumstances will only be applicable in respect of two of such houses. However, the same will not be applicable if the house or any part thereof is actually let during any time of the tax year, or if the owner derives any other benefit from it.

Property held as stock-in-trade

Where a property is held as stock-in-trade and is not let wholly or partly at any time during the tax year, the annual value of such property or part thereof shall be nil for 2 years from the end of the financial year in which the completion certificate of construction is obtained from the competent authority.

Treatment of arrears of rent and unrealized rent received subsequently

Under Section 23 of the Income Tax Act, 2025 (erstwhile section 25 and 25A of the Income Tax Act, 1961), the amount of arrears of rent or any unrealized rent received by the owner from the tenant subsequently will be deemed to be income from house property in the tax year in which it us received/realized even if the assessee is not the owner of the house property in that tax year.

Differences between Income Tax Act, 1961 and 2025

While in essence and spirit, the provisions governing the income from house property taxation are similar under the new Income Tax Act, 2025 and the erstwhile Income Tax Act, 1961, however, there are a few major differences as elucidated below –

• As per the new Income Tax Act, 2025 u/s 21(3), the annual value of any property shall be reduced by the taxes (including service taxes) levied by a local authority in respect of such property, actually paid during the tax year by the owner, irrespective of when such taxes became payable.

However, as per the erstwhile Section 23(c) of the Income Tax Act, 1961, the taxes will be reduced when levied (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner).

• As per the Income Tax Act, 1961 under section 23(2)(b), it was specifically mentioned that if the property cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, the assessee has to reside at that other place in a building not belonging to him, then the annual value will be considered as nil.

However, under the new Income Tax Act, 2025, this specific provision has been removed and a general relief has been granted for any property that cannot be occupied due to any reason.

FAQs

Q1. How to calculate income from house property?

A1. The income from house property will be calculated based on the annual value and reduced by such deductions and taxes as allowed under the law.

Q2. How to calculate tax on rental income if property is owned by multiple owners?

A2. As per Section 24 of the Income Tax Act, 2025 (erstwhile Section 26 of Income Tax Act, 1961), if the property is co-owned with definite and ascertainable share, the co-owners shall not be assessed as an association of persons i.e. their income will be assessed separately as per their respective shares. Even the relief regarding rental income being considered as nil shall be provided to each co-owner individually.

About the Author This article is written by FCA Eshita Krishna , an experienced Chartered Accountant with advanced ICAI certifications in DISA, Anti-Money Laundering, Real Estate Laws, and Forex & Treasury Management. With strong expertise in direct and indirect tax, audit, risk advisory, financial planning, and financial management, she delivers accurate, experience-backed financial insights to readers.