Proposed new tax rule to classify Homestay income as house property thus increasing tax liability for homeowners

A new amendment mandates that income earned from homestays must be declared under house property income, rather than business income—a common practice among many property owners. This change aims to close a loophole that allowed homeowners to reduce their tax liability. According to the Memorandum to the Union Budget 2024, the amendment will come into effect from April 1, 2025, and will apply to the assessment year 2025-26 and onwards.

Experts believe that this move will negatively affect individuals renting out their properties through platforms like Airbnb, as they will no longer be eligible for a wide range of business-related deductions. Expert say that “This change will impact the taxability of such businesses, limiting them to only a few deductions like standard deductions and taxes paid.”

Previously, homeowners could claim deductions for services such as cleaning and lodging, but these will no longer be permissible. Industry experts estimate that the absence of these deductions could increase tax liabilities by 30-40%. Additionally, the government has introduced a 1% tax deduction at source (TDS) on the sale of immovable property valued at Rs 50 lakh or more, even when multiple buyers and sellers are involved. Further reports are awaited on the new proposals.