The first full budget announcement by the current Indian government after the election came up with pleasant surprises for the realty sector. Especially, tax-related announcements in the 2025 budget are expected to boost the demand side significantly.
In the Budget 2025, the FM made 3 big announcements that may impact the realty sector in the near future. After years of inflation and the COVID-19 setback” for smoother flow., there was no significant tax relief announced by the government. However, this time the government came up with a surprising change in the tax slab that may allow people with more money in hand to spend and meet their consumption needs. Here’s the tax-related budget announcement that may impact the realty sector and the related parties.
Proposed change in the Tax Slab rate
The government has announced a big change in the tax slab rate under the new tax regime. Now, taxpayers with income up to Rs 12 Lakh will be required to pay “Zero” income tax by availing the rebate proposed by the government. For salaried people, having income up to Rs 12.75 Lakh will be required to pay Zero tax (After a standard deduction of Rs 75000). Here’s the comparison between the old and new tax slabs under the new tax regime.
| Before Budget 2025 | Proposed in Budget 2025 | |||
| Income (In Rs) | Tax | Income (In Rs) | Tax | After Rebate* |
| < 3 Lakh | NIL | |||
| 3 – 7 Lakh | 5% | < 4 Lakh | NIL | NIL |
| 7 – 10 Lakh | 10% | 4 – 8 Lakh | 5% | NIL |
| 10 – 12 Lakh | 15% | 8 – 12 Lakh | 10% | NIL |
| 12- 15 Lakh | 20% | 12- 16 Lakh | 15% | 15% |
| > 15 Lakh | 30% | 16 – 20 Lakh | 20% | 20% |
| 20 – 24 Lakh | 25% | 25% | ||
| > 24 Lakh | 30% | 30% | ||
*No rebate if income is above the prescribed rebate threshold
“The middle class, a crucial driver of demand, benefits immensely from tax incentives that translate their aspirations for an improved quality of life into tangible home-buying prospects. This is expected to generate a positive demand curve in the real estate sector. Banks have reported a notable 40% increase in retail home loan portfolios post-COVID, and the anticipated reduction in home loan interest rates will further fuel this sustained demand. Emerging growth corridors featuring new projects with integrated amenities are poised to attract even more buyers”, says Dr Niranjan Hiranandani, Chairman, NAREDCO & Hiranandani Group.
Interestingly, the proposed change applies only to the new tax regime, and the old tax regime has been kept unchanged. This means that to avail of the proposed tax reduction benefit, a taxpayer continuing with the old regime must switch to the new one. The question is, if a taxpayer is taking the tax benefit u/s 80C, u/s 80D, u/s 24, u/s 80E and other deduction benefits, should they leave them and switch to the new tax regime?
Occupancy of the second home to be eligible for a tax relief
The government has made the second big announcement by allowing the second home to be considered self-occupied, thus exempting it from the notional rent calculation.
Mr. Sandeep Ahuja, CEO of Atmosphere Livingexplains, “The recent change in Budget 2025 allowing taxpayers to treat two properties as self-occupied significantly benefits individuals who own a holiday home or a second property for personal use. Previously, owning more than one property meant the second property would be taxed on deemed rental income, even if not rented out. This made owning a second home, such as a vacation property, less attractive due to the extra tax burden. However, with the new rule in Budget 2025, taxpayers can now classify their primary residence and holiday home as self-occupied, exempting them from the tax on notional rental income for the second property”.
Allowing two properties to be self-occupied will boost property demand from second home buyers and investors as they don’t need to pay tax on a notional income on such property.
The threshold limit in rental income increased to Rs 6 Lakh for TDS liability
In the third tax-related big announcement, the government increased the threshold limit for paying the TDS on the rental income from Rs 2.4 Lakh to Rs 6 Lakh.
“The Budget has increased the annual limit of INR 2.4 lakh for TDS on rent to INR 6 lakh in case of renting for non-residential purposes. This will reduce the tax burden on smaller taxpayers who are into the business of renting out smaller premises for their living and thus enjoy higher disposable income. Also, this aims to bring in operational efficiencies as the number of TDS transactions will reduce. The Budget also allows the benefit of two self-occupied properties without any condition, thus reducing the compliance burden on the taxpayers”, says Vimal Nadar, Head of Research, Colliers India.
New Income Tax legislation to be introduced in the following week after budget 2025
The tax-related announcement may not be over because the government announced it would introduce a new income tax legislation in the coming week.
Mr. Taranpreet Singh, Partner TASS Advisors LLP, points out, “The government is set to unveil a new income tax legislation next week, marking one of the most anticipated policy announcements today. The proposed law aims to simplify tax regulations, making them more transparent and taxpayer-friendly while upholding the principles of the ‘Nyaya’ approach. A key objective of the new legislation is to reduce litigation and streamline tax compliance. However, a critical aspect will be the treatment of pending disputes under the existing tax framework. As the transition unfolds, it will be essential to closely analyse its implications for taxpayers and the broader tax ecosystem”.
From a tax perspective, the change in tax slab and other above-mentioned tax-related announcements are expected to leave taxpayers with more significant disposable income, which they can use for things such as repaying their loan EMIs, spending on lifestyle expenses, increasing investment towards financial planning and mitigating the inflation risk more effectively. With more money in hand, the demand for the realty sector is expected to get a solid boost shortly.
Housing.com POV
Budget 2025 marks a pivotal shift for the real estate sector, with tax reforms poised to unlock significant demand. The revised tax slabs will boost disposable incomes, empowering the middle class to invest confidently in homeownership. Relaxing second home taxation removes a key deterrent for potential buyers, while the higher TDS threshold on rental income eases compliance and enhances rental yields. These measures create a more investor-friendly environment, signalling robust growth for primary and second residences. The sector is set to benefit from increased liquidity, driving momentum across emerging real estate corridors.
FAQs
How will the new tax slabs in Budget 2025 impact real estate demand?
The revised tax slabs increase disposable income, especially for the middle class, enabling more people to invest in property and boosting real estate demand.
Can I own two homes without paying notional rent tax?
Budget 2025 allows taxpayers to treat two properties as self-occupied, exempting them from notional rent tax on the second home.
What is the new TDS threshold on rental income as per Budget 2025?
The TDS threshold on rental income has been increased from ₹2.4 lakh to ₹6 lakh, reducing the tax burden for small property owners.
Does the new tax regime benefit property buyers more than the old regime?
Yes, the new regime offers higher tax rebates, which means more disposable income that can be directed towards home purchases.
Will the upcoming income tax legislation affect real estate investments?
The new legislation aims to simplify tax compliance, which could make property transactions more transparent and investor-friendly.
