What Does the 2025-26 Budget Mean for Real Estate in India?

The real estate sector commands a large portion of the Indian economy, and more so with the introduction of progressive government policies, foreign investments, and technological advancements. Additionally, the implementation of digital transactions, the adoption of sustainable construction practices, and the development of smart cities have redefined the industry, making real estate more transparent and efficient.

Key Takeaways

SWAMIH Fund 2.0 Allocation: The government has allocated Rs. 15,000 crores to revive stalled affordable and mid-income housing projects, providing relief to homebuyers awaiting possession.

Income Tax Exemption: Income up to Rs. 12 Lakhs is now exempted from taxation under the new regime, significantly boosting purchasing power for middle-class homebuyers.

TDS Threshold Increase: The annual TDS threshold on rental income has been raised from Rs. 2.4 Lakh to Rs. 6 Lakh, simplifying compliance for landlords and encouraging rental housing investments.

Multiple Self-Occupied Properties: Taxpayers can now claim nil annual value for up to two self-occupied properties instead of one, reducing tax burden and promoting second home purchases.

Capital Gains Cap: A Rs. 10 crore cap has been introduced on capital gains exemption under Section 54 to ensure equitable distribution of tax benefits and prevent excessive tax avoidance.

Market Acceleration: These strategic measures are set to increase market growth, address existing challenges, and create a more transparent and dynamic real estate sector in India.

Impact of the 2025-26 Budget for Property

Furthermore, Finance Minister Nirmala Sitharaman presented the Union Budget 2025-26, which introduced several strategic measures aimed at stimulating industry growth, improving affordability, and streamlining taxation in the real estate sector. With key reforms such as tax exemptions, infrastructure investments, and financial support for stalled projects, the industry is set for accelerated expansion. The income tax revisions are expected to raise consumer spending, making homeownership more attainable, which in turn will drive up the demand in the housing market. It is advisable to understand the current real estate industry before making any investments.

Special Window for Affordable and Mid-Income Housing (SWAMIH) Fund 2.0

In the Union Budget of 2025, the government allocated 15,000 crores to the second SWAMIH Fund as a way of addressing the issues of stalled housing projects. This initiative provides priority debt financing to ensure the completion of affordable and mid-income housing projects that have been delayed due to financial constraints. This is aimed at aiding brownfield and RERA-registered affordable and mid-income housing projects. By reviving all these projects, the fund is focused on delivering homes to buyers awaiting possession, stimulating investment in the housing segment, and adding a boost to the real estate market.

Income Tax Reforms Increasing Affordability

A vital component extended by the 2025-26 budget, which is quite different from the budgets of the past, is the substantial relief provided to individual taxpayers. Under the new regime, the government has effectively exempted income up to Rs. 12 Lakhs from taxation. This move is expected to boost consumer spending, especially among those belonging to the middle class sector, including investments in housing. By enhancing purchasing power, the reform is expected to make homeownership more attainable for a broader segment of the population, thereby stimulating demand in the residential real estate market for premium real estate developer projects.

TDS Simplification

Another interesting move made by the Indian government that provides the real estate market the much-needed boost is the revision of TDS (Tax Deducted at Source) rules on rental income. This move makes compliance easier for landlords and investors as the budget increases the annual TDS threshold on rental income from Rs. 2.4 Lakh to Rs. 6 Lakh. This adjustment simplifies tax obligations for landlords, particularly those with modest rental incomes, and is expected to encourage investment in rental housing. It also significantly reduces administrative load, making the rental market significantly attractive to existing and future homeowners. 

Tax Exemptions on Multiple Self-Occupied Properties

In another attempt to encourage investment in residential real estate, the Union Budget extended by the government allows taxpayers to claim a nil annual value for up to two self-occupied properties. Previously, only one such property could avail this benefit, while additional properties attracted tax on notional rental income. This change reduces the tax burden on homeowners with multiple properties. This initiative also promotes the acquisition of second homes and investments in tier-2 and tier-3 cities. The reform is targeted at revamping the housing market by making property investment more financially appealing.

Read more about the tax benefits of real estate investment in India.

Capital Gains Tax Adjustments

The Union Budget introduced a cap of Rs. 10 crore on capital gains eligible for exemption under Section 54 when the proceeds are reinvested in residential property. With no upper limit previously, this measure aims to curb excessive tax avoidance in high-value property transactions. While it may deter large-scale investments seeking tax shelters, the cap is designed to ensure that tax benefits are equitably distributed and that the real estate market remains accessible to genuine homebuyers, especially the middle-class sector.

By enhancing affordability through tax reliefs, promoting investment via favorable policies and initiatives, and focusing on infrastructure development, the government aims to create a more approachable real estate industry for both homebuyers and investors. These measures are expected to increase market growth, address existing challenges, and pave the way for a more resilient and dynamic real estate market in the coming years. 

FAQs

What is the SWAMIH Fund 2.0?

SWAMIH Fund 2.0 is a government initiative with Rs. 15,000 crores allocated to provide priority debt financing for completing stalled RERA-registered affordable and mid-income housing projects.

How much income is exempted from tax in Budget 2025-26?

Under the new tax regime, income up to Rs. 12 Lakhs is exempted from taxation, increasing disposable income and making homeownership more affordable for middle-class buyers.

What is the new TDS threshold on rental income?

The annual TDS threshold on rental income has been increased from Rs. 2.4 Lakh to Rs. 6 Lakh, simplifying tax compliance for landlords and reducing administrative burden.

How many self-occupied properties can claim tax exemption now?

Taxpayers can now claim nil annual value for up to two self-occupied properties, compared to just one previously, encouraging investment in second homes.

What is the capital gains exemption cap under Section 54?

The Budget 2025-26 has introduced a Rs. 10 crore cap on capital gains eligible for exemption under Section 54 when reinvested in residential property.

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