There are two types of house property under the Income Tax law – one is a let-out property and the other, a self-occupied property. The law deems the annual value (annual income from the property, simply put) of a self-occupied property as nil, provided a couple of conditions are satisfied.

Currently, claiming this relief for a maximum of two self-occupied properties are permitted. From the third property, the annual value is a notional rent (even though no rent is actually earned), to be calculated as per the provisions of the law and to be included in the total income.

A property to qualify as a self-occupied property, needs to satisfy either of the following conditions: a) the taxpayer resides in that property; (or) b) (i) the taxpayer is unable to occupy the property for reasons of employment, business or profession in a city different from that of the property (and); (ii) he or she resides in a building that is not owned, in the city of his or her employment/business/profession.

What changes

Now the Finance Bill proposes to do away with condition (b). It permits a property to qualify as a self-occupied property, if the taxpayer is not able to occupy it. No questions asked. The taxpayer need not satisfy the condition as to why he or she could not occupy the property, nor need he or she prove residence in a property that he or she does not own.

Here’s an illustration. Let’s say Naren owns a house each in Chennai and Mumbai. He lives in Mumbai, his place of business and residence. As the provisions stand, he would be able to claim the benefit of self-occupied property only in respect of the house in Mumbai. As regards the Chennai house, though condition (b)(i) is satisfied, (b)(ii) is not, since he resides in a property that he owns. Hence, he needs to calculate notional rent for the Chennai property and pay tax on it.

Now with the Budget having done away with condition (b), he is eligible to claim the benefit of self-occupied property in respect of both the properties. If in the same case, he has a third property in Delhi, for instance, he can choose any two of his properties to claim the benefit of self-occupied property and pay tax on notional rent calculated on the third property.

The above proposal, if passed, is set to come into effect from FY25.

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