What House Property Incomes Are Exempt from Tax?

Not every rupee of rental value from a house property lands on your tax return. The Income Tax Act, 1961 carves out a specific list of properties whose income is either fully exempt or reduced to a notional zero. Some of these exemptions exist to support agriculture, some to protect institutions serving the public good, and one exists simply because millions of Indians live in a home they own. Understanding this list matters for anyone studying Income from House Property, because exemptions are just as important to computation as the taxable side of the ledger.

Why some house property income escapes tax altogether 🔗

Sections 22 to 27 of the Income Tax Act deal with how rental or notional income from a building is computed and taxed. But before you even reach that computation, Section 10 and a handful of other provisions pull certain categories of property income out of the picture entirely. The logic varies by category. Agricultural buildings are exempt because they support farming income, which is constitutionally outside the Union’s tax net. Institutions like local authorities, universities, and charitable trusts are exempt because taxing them would reduce funds meant for public welfare. And self-occupied houses get relief because taxing a notional rent on a home you live in, rather than let out, never made economic sense to begin with.

Agricultural land and farmhouses 🔗

Under Section 10(1), any income classified as agricultural income is exempt from tax. This umbrella extends to buildings situated on, or in the immediate vicinity of, agricultural land, provided the building is used as a dwelling house, storehouse, or outhouse by the cultivator or landholder for purposes connected with that land. A farmhouse used to store harvested grain or a godown built to hold seeds and fertiliser for agricultural operations both fall under this exemption, since their income is treated as part of agricultural income rather than as house property income, as explained by TaxGuru’s breakdown of exempted house property income.

The exemption is tightly linked to actual agricultural use. If the same building is rented out for a non-agricultural purpose, such as a wedding venue or a commercial warehouse unrelated to the land’s cultivation, the income loses its agricultural character and becomes taxable in the normal course.

One palace, one exemption for ex-rulers of Indian states 🔗

Before India’s princely states merged into the Union, many former rulers held multiple palaces. Section 10(19A) recognises this history with a narrow exemption: the annual value of one palace in the occupation of an ex-ruler is treated as nil, provided the Central Government had already recognised that specific palace as the ruler’s official residence before the merger. Any additional palaces owned by the same ex-ruler do not get this benefit and are taxed under the normal rules, as IndiaFilings’ guide to house property exemptions notes. This is one of the more historically specific exemptions in the Act, reflecting a transitional arrangement rather than a general policy tool.

Local authorities and government-linked bodies 🔗

Section 10(20) exempts the property income of local authorities, such as municipal corporations, municipalities, panchayats, and cantonment boards. The reasoning is straightforward: these bodies exist to deliver civic services funded by public revenue, and taxing their property income would simply move money from one government pocket to another while adding compliance burden.

A related set of exemptions covers statutory bodies formed to promote the welfare of specific communities. Property income earned by a statutory corporation, institution, or cooperative society established to advance the interests of Scheduled Castes, Scheduled Tribes, or notified minority communities is exempt, since these entities function as extensions of social welfare policy rather than as commercial property owners.

Education, healthcare, and research institutions 🔗

Section 10(23C) exempts property income earned by universities, educational institutions, and hospitals that exist solely for educational or medical purposes and not for profit. A university that rents out part of its campus building for a bookstore, or a hospital that leases unused wings to a diagnostic lab, does not pay tax on that rental income, so long as the institution’s core purpose remains non-commercial. This exemption is designed to keep whatever surplus these institutions generate reinvested into education and healthcare rather than diverted to tax outgo.

Scientific research associations and registered trade unions 🔗

Two more categories sit alongside educational and medical institutions. Property income of an approved scientific research association is exempt under Section 10(21), supporting India’s research ecosystem. Similarly, Section 10(24) exempts the property income of a registered trade union formed to regulate relations between workers and employers, or between workers themselves, recognising the union’s role as a welfare body rather than a profit-seeking landlord.

Godowns and warehouses let out by marketing authorities 🔗

Agricultural marketing depends heavily on storage infrastructure. Section 10(29) exempts the income earned by an authority constituted under a law for the marketing of commodities when that authority lets out godowns or warehouses for storing, processing, or facilitating the marketing of those commodities. Bodies such as state marketing federations or commodity boards that maintain storage facilities for farmers’ produce fall under this provision, as summarised in a university commerce department’s teaching notes on house property income. The exemption keeps storage charges from being eaten into by tax, which in turn keeps the cost of agricultural marketing infrastructure lower for farmers and traders alike.

Political parties 🔗

Section 13A gives political parties a broad exemption. Any income of a registered political party that would otherwise be chargeable under the head “Income from house property,” along with income from other sources, capital gains, and voluntary contributions, is excluded from its total income. This means office buildings and other property owned by a political party generate no taxable rental value. The exemption is not unconditional, though. The party must be registered under Section 29A of the Representation of the People Act, 1951, maintain proper books of account, record the identity of contributors above the prescribed threshold, get its accounts audited, and file its income tax return on time. Failing any of these conditions can cost the party its exemption for that year, according to the Income Tax Department’s own text of Section 13A.

Charitable and religious trusts 🔗

Section 11 exempts income from house property held wholly for charitable or religious purposes, so long as the income is applied toward those objects in India. A temple that owns a shop and rents it out, or a charitable trust that lets out part of a building it holds for its welfare activities, does not pay tax on that rent as house property income, provided the trust is registered and the funds are genuinely used for the stated charitable or religious purpose. This exemption ties directly into the broader framework of trust taxation, where accumulation and application of income are tracked separately from regular house property computation.

Self-occupied houses: relief since the Finance Act, 1986 🔗

Perhaps the most widely used exemption of all applies to ordinary taxpayers rather than institutions. Before 1986, even a house you lived in yourself could generate a notional “annual value” that got added to your taxable income, simply because the law assumed every property could theoretically earn rent. The Finance Act, 1986 changed this by amending Section 23(2) to say that where a house, or part of it, is occupied by the owner for their own residence and not let out during the year, its annual value is taken as nil. The Central Board of Direct Taxes later clarified through Circular No. 538 of 1989 that the income from such a house is still technically chargeable under the head “Income from house property,” it is simply computed at nil, which matters for related provisions like capital gains exemptions on the sale of a self-occupied house.

What changed after that 🔗

The scope of this relief expanded over time. From Assessment Year 2020-21, taxpayers could claim nil annual value for two self-occupied properties instead of one, provided the second house could not be occupied due to employment, business, or profession carried on elsewhere. The Finance Act, 2025 removed even that condition. From Assessment Year 2025-26, a taxpayer can treat up to two houses as self-occupied with nil annual value regardless of the reason they are not occupied, as long as neither is actually let out during the year, according to TaxGuru’s analysis of the amended Section 23(2). A third or further self-occupied property, however, is still treated as deemed to be let out and taxed on a notional rent basis. Owners of self-occupied houses can also continue to claim a deduction on home loan interest under Section 24(b), capped at ₹2,00,000 a year, even though the annual value itself is nil.

A quick reference table 🔗

What do you think? 🔗

What do you think? Do exemptions like the one for political parties strike the right balance between supporting institutions and keeping the tax base fair? And now that the Finance Act, 2025 allows two self-occupied houses with nil annual value regardless of the reason for non-occupation, does that change how you would structure ownership of a second home?

References

1. https://taxguru.in/income-tax/exempted-income-house-property.html
2. https://www.indiafilings.com/learn/house-property-incomes-exempted-from-income-tax
3. https://gcgldh.org/downloads/e-Content/Learning-Material/Commerce/7-income-from-house-property.pdf
4. https://www.incometaxindia.gov.in/w/section-13a
5. https://www.incometaxindia.gov.in/w/538-circular-no.-538-dated-13-07-1989
6. https://taxguru.in/income-tax/annual-self-occupied-property-income-tax-act-1961.html