House Property Income Deductions: Comparing Clause 22 of Income Tax Bill, 2025 with Sections 24 and 25 of Income Tax Act, 1961.

Clause 22 Deductions from income from house property.

Income Tax Bill, 2025

1. Introduction

The Income Tax Bill, 2025 proposes significant modifications to the existing provisions regarding deductions from income from house property through Clause 22, which aims to replace the current Sections 24 and 25 of the Income Tax Act, 1961. This analysis examines the key changes and their implications.

2. Structural Changes and Reorganization

• The new Clause 22 presents a more organized and structured approach compared to the existing provisions:
• Consolidates provisions from both Sections 24 and 25
• Introduces clear subsections with specific conditions
• Provides better clarity on deduction limits and conditions

3. Key Changes in Standard Deduction

3.1 Retention of Basic Framework

• Maintains the 30% standard deduction of annual value
• Continues allowing interest deduction on borrowed capital

3.2 Modifications in Interest Deduction

• Maximum deduction limit remains at Rs. 2 lakh
• New structured approach for prior period interest deduction
• Enhanced clarity on conditions for claiming interest deduction

4. Notable Additions and Modifications

4.1 Certificate Requirements

• The new provision introduces specific requirements for the interest certificate:
• Mandatory specification of interest amount on borrowed capital
• Additional requirement to specify interest on new loans
• Clear documentation of loan refinancing

4.2 Time Limit for Construction

• Extends the construction completion timeline to five years from the end of the tax year in which capital was borrowed
• More precise language regarding the computation period

5. Treatment of Foreign Interest Payments

• The Bill incorporates Section 25's provisions regarding foreign interest payments with modifications:
• Links to Chapter XIX-B instead of Chapter XVII-B
• References Section 306 instead of Section 163
• Maintains the basic restriction on foreign interest deduction

6. Practical Implications

6.1 For Taxpayers

• Clearer guidelines for claiming deductions
• More structured approach to documentation
• Better defined limits and conditions

6.2 For Tax Administration

• Enhanced clarity in implementation
• Better framework for verification
• Reduced scope for interpretation disputes

7. Conclusion

The proposed Clause 22 represents a significant improvement in terms of:

• Legislative clarity
• Structural organization
• Implementation framework
• Compliance requirements

Full Text:

Clause 22 Deductions from income from house property.

Dated: 28-2-2025