Renting out your property? Brace for higher taxes and tweaked ITR filing requirements following a significant change in Budget 2024. The Centre in the Budget 2024-25 has announced an amendment to Section 28, clarifying that rental income earned through a taxpayer’s house will no longer be chargeable under the “profits and gains for business or profession” head.

Now, all rental incomes from residential properties will have to be shown under the head ‘income from house property’ and not under “income from business or profession”, the Budget document clarified.

How will this Amendment to Section 28 impact taxpayers?

This shift will change the tax treatment of incomes from rental yields of properties and now property owners may have to pay more taxes as these incomes will be shown under a different head.

Also read: ITR Filing 2024: How to file income tax returns via WhatsApp – Step-by-step guide

Section 28 of the Income Tax Act 1961 is a key provision in Indian tax law that governs the taxation of “profits and gains of business or profession.” It outlines the scope of income derived from business or professional activities and establishes the framework for its taxability.

The clarification introduced in the Finance Bill 2024 addresses the issue of individuals categorizing rental income under the ‘profits and gains of business or profession’ in Section 28 of the Income Tax Act, 1961, in an effort to reduce their tax liabilities.

“It is proposed that income from letting out of a house or part of the house by the owner, shall not be charged under the head ‘profits and gains of business or profession’ and will be chargeable to tax under the head ‘income from house property’ only,” Finance Minister Nirmala Sitharaman in her budget speech.

Elaborating in the Budget document, the government mentioned that Section 28 of the Act specifies kinds of income that shall be chargeable to income tax under the head ‘Profits and gains of business or profession’.

Some taxpayers show rental income under ‘Profits and gains of business or profession’ head

“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,” it said.

Also read: Who should file ITR-2? Step-by-step guide to file tax return online

Therefore, the government has proposed an amendment to Section 28 of the Income Tax Act to clarify that income from renting out a residential house or part of it will no longer be classified under the “profits and gains of business or profession” head. Instead, it will be assessed under the “income from house property” head. This change will take effect from April 1, 2025, and will apply to the assessment year 2025-26 and subsequent years.