Arjuna (Fictional Character): Krishna, the Union Budget for 2025-26 has been announced recently. I heard there are some major changes in house property taxation. Can you explain how these changes will impact homeowners?
Krishna (Fictional Character): Arjuna, this budget has brought significant simplification in the tax treatment of house properties, particularly for self-occupied properties. Earlier, if you owned more than one house, certain restrictions applied regarding how they were taxed, which often resulted in unnecessary tax liability. However, these have now been relaxed, bringing much-needed relief to homeowners.
Arjuna (Fictional Character): Krishna, Are there any changes in the tax treatment of house properties?
Krishna (Fictional Character): Arjuna, earlier, if you owned more than one house, you could declare up to two houses as self-occupied properties (SOP) with nil annual value, provided you or your family actually lived in them.
However, if you couldn’t occupy the house—due to work relocation or other reasons—the house was treated as a deemed rented property, and notional rental income was added to your taxable income, even if you didn’t actually earn any rent from it.
Now, the physical occupation condition has been removed. Even if neither you nor your family can live in the house for practical reasons, you can still declare two houses as SOP, and their annual value will be nil, meaning no deemed rental income will be added to your income.
For Example- Mr A owns 2 house properties one in Pune and another in Nashik where he lives due to work, earlier property in Pune would not qualify as self-occupied as it is not occupied hence its deemed rental income would be added to his taxable income. Now as per the proposed change he can declare both houses as self-occupied, and no deemed rental income will be added, even if he doesn’t live in property at Pune.
Arjuna (Fictional Character): What if I own more than two houses? Will the new rule apply to all of them?
Krishna (Fictional Character): No, Arjuna. There is no change in number of house property allowed to be declared as self-occupied property it is still two houses. If you own three or more houses, the third house and beyond will be considered as deemed let out, and you’ll need to pay tax on their deemed rental income.
Example: Now if you own 3 house properties, one in Pune where our family resides, one in Nashik where you live due to your work and if you own a third house in Mumbai, its notional rental income will be added to your taxable income, just like before. This new rule makes it easier to declare two houses as self-occupied, but any additional house will still be taxed.
Arjuna (Fictional Character): Krishna, what does the taxpayer learn from this?
Krishna (Fictional Character): Arjuna, the key takeaway is that the removal of the physical occupation requirement brings huge relief for taxpayers with multiple houses. Now, homeowners can declare two houses as self-occupied, even if they don’t live in them due to work or personal reasons, without paying tax on deemed rental income.
However, taxpayers should be mindful that only two houses can be self-occupied. Any additional properties will still attract tax on notional income.
Planning carefully and understanding how this rule applies will help reduce tax liability and simplify compliance.
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