Budget 2024: Rent from residential property loses business income tag
In Budget 2024, finance minister Nirmala Sitharaman announced a significant amendment regarding the treatment of rental income from residential property. Previously, individuals could report their rental income as business income, but this will now change. Rental income from residential property must be reported under the 'Income from House Property' category, as per Section 24 of the Income Tax Act.
Previously, house owners could offset rental income against various expenses, thereby reducing their taxable income. "Some people were putting rental income from houses as income from business. They could then offset that with business expenses, including fake repair or maintenance bills, or salaries to employees who managed the property," said Karan Batra, founder of charteredclub.com.
This practice led to considerable tax arbitrage as taxpayers could significantly reduce their liabilities through inflated or non-legitimate expense claims. The amendment aims to curb such practices and increase tax revenue. With the amendment, rental income from residential property must be reported as 'Income from House Property.' This change restricts the deductions available to taxpayers.
Instead of offsetting rental income against expenses, taxpayers can now only claim standard deduction of 30% and municipal taxes paid. According to experts, the primary motivation for this amendment was to reduce tax evasion and streamline the reporting of rental income. By restricting the deductions available, the government aims to minimise bogus claims and ensure more accurate tax collection.
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