On July 23, FM Nirmala Sitharaman stated that some taxpayers were incorrectly reporting their rental income under the “Profits and Gains of Business or Profession” head, thereby reducing their tax liability.
She mentioned, “It has been observed that some taxpayers are reporting their rental income generated by letting out of the house property, under the head ‘Profits and gains of business or profession’ in place of the head ‘Income from house property’. Accordingly, they are reducing their tax liability substantially by showing house property income under the wrong head of income."
Some taxpayers have been found to be reporting their rental income from renting out house property as "Profits and gains of business or profession" instead of "Income from house property". This practice has enabled them to significantly reduce their tax liability by wrongly categorizing the source of income.
According to Gaurav Karnik, Partner and Real Estate National Leader, EY India,"Such clarity is expected to reduce litigation and foster a more stable and predictable tax environment.”
Hemal Mehta, Partner at Deloitte India, believes that income from leasing a residential property is now proposed to be taxed under the head 'House Property' rather than 'Profit from Business,' even if the lease includes additional services such as breakfast, laundry, and others.
The Memorandum to Union Budget 2024 states,"The amendment will take effect from the 1st day of April, 2025 and will, accordingly, apply in relation to assessment year 2025-26 and subsequent assessment years."
In Budget 2024, it has been made clear that a Tax Deduction at Source of one percent will be implemented on the sale of property worth Rs.50 lakh or more. This deduction will still apply even if there are multiple buyers and sellers involved in the transaction.
The government announced that a one percent TDS will be applicable on the transfer of immovable property involving multiple sellers or buyers where the total consideration is Rs.50 lakh or more.
According to the budget document, Section 194-IA of the Act currently mandates tax deduction on payments for the transfer of certain immovable properties, excluding agricultural land. An amendment to this section will be made to provide further clarification.
The government, in the budget document, has stated that Section 194-IA of the Act allows for tax deduction on the payment made for transfer of particular immovable property (excluding agricultural land). They plan to make an amendment to this section with a view to providing clarity.
According to the note,"Therefore, if the buyer is paying less than Rs.50 lakh, no tax is deducted, even if the value of the immovable property and the stamp duty value exceed Rs.50 lakh. This situation is contrary to the legislature’s intention."
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