Renting out your house can be a great way to earn extra income. However, it’s important to understand the tax rules that apply to rental income. With the recent changes announced in Budget 2024 by Finance Minister Nirmala Sitharaman, the government is tightening tax regulations around rental income to close certain loopholes. These changes, which will come into effect from April 1, 2025, will impact how rental income is reported and taxed. Here’s a simple explanation of what you need to know.

1. Income from House Property vs. Business Income

In the past, some homeowners were reporting rental income under the heading "Profits and gains of business or profession" instead of the correct category, which is "Income from house property". This misclassification allowed them to reduce their tax liabilities and pay less tax than they should.

The government has noticed this issue and, starting from April 1, 2025, has made it clear that all rental income from residential properties must be reported under the category "Income from house property". This change is important because the tax treatment of rental income is different from business income. For instance, if you declare your rental income as "Income from house property", you can claim a standard deduction of 30% for maintenance and repairs, but other business-related deductions will not be allowed.

2. Why Is This Change Important?

The government introduced this change to make sure that people pay the correct amount of tax on their rental income. By misclassifying rental income, some taxpayers were reducing their tax liabilities, which led to a decrease in government revenue. The new rule ensures that all homeowners renting out their properties are taxed fairly and that they report their income accurately.

If you are a homeowner renting out your property, it’s important to follow the new rules to avoid any penalties. From April 1, 2025, any rental income you earn must be declared as "Income from house property", and you cannot use business or profession-related deductions to reduce your tax.

3. Global Income Reporting

In addition to the changes around rental income, the Budget 2024 also addresses another issue related to global income reporting. Some taxpayers who earn income from abroad were not including taxes withheld in other countries when reporting their income in India. This practice resulted in under-reporting of income and led to inflated claims when these foreign taxes were deducted from their Indian tax liability.

Starting from April 1, 2025, it will be mandatory to include any foreign tax credits when calculating your total taxable income in India. This change ensures that resident taxpayers accurately report their global income and pay the right amount of tax on it.

4. How Does This Affect You?

If you are a homeowner renting out your property, these changes will directly affect how you report and pay tax on your rental income. The most important thing to remember is that rental income must be reported correctly under "Income from house property". You will no longer be able to declare it as business income to take advantage of additional deductions.

If you have income from abroad, the new rules mean you must include all foreign tax credits when calculating your total income. This ensures you’re reporting your global income correctly and paying the appropriate amount of tax.

The new tax changes introduced in Budget 2024 aim to close loopholes and ensure proper tax reporting, particularly for rental income and global earnings. If you’re renting out your house or have income from abroad, it’s essential to understand these changes and follow the new rules to avoid penalties. By reporting your income correctly, you can ensure a smooth tax filing process and stay on the right side of the law.