Budget: Taxpayers get relief on 2 self-occupied properties under new rule

his amendment provides significant tax relief, reduces compliance burdens, and encourages homeownership by making it more affordable for middle-class families

In a significant move to simplify tax compliance and provide relief to homeowners, Finance Minister Nirmala Sitharaman, in her Budget 2025 speech, announced that taxpayers will now be able to claim the annual value of two self-occupied properties as “nil,” without having to fulfill any conditions.

 

This change, which is set to take effect from April 1, 2025, will apply to the assessment year 2025-26 and is aimed at making it easier for individuals with multiple homes to determine their tax liabilities on house properties. Currently, the Income Tax Act allows taxpayers to claim the annual value of self-occupied property as nil only under specific conditions such as the taxpayer residing in the property or being unable to occupy it due to employment, business, or professional reasons.

 

What’s Changing?

The amendment to Section 23 of the Income Tax Act will now allow two self-occupied properties to be claimed as nil for tax purposes, meaning there will be no tax on notional rental income from these properties as the change will remove the previous requirements that taxpayers needed to fulfill, such as demonstrating that the property could not be occupied due to work commitments.

 

The revised law provides that if the taxpayer resides in a property or is unable to occupy it for any reason (including work-related obligations), the annual value of the property will be considered as nil, resulting in no notional income tax being levied on the property.

 

"Presently taxpayers can claim the annual value of self-occupied properties as nil only on the fulfilment of certain conditions. Considering the difficulties faced by taxpayers, it is proposed to allow the benefit of two such self-occupied properties without any condition."

 

As per the Budget memorandum, the government has proposed amendment to Sub-Section 2 of Section 23 of Income Tax Act, which relates to determination of annual value of house properties.

 

"Sub-section (2) of the said section provides that where house property is in the occupation of the owner for the purposes of his residence or owner cannot actually occupy it due to his employment, business or profession carried on at any other place, in such cases, the annual value of such house property shall be taken to be nil," the document said.

 

"With a view to simplifying the provisions, it is proposed to amend the sub-section (2) so as to provide that the annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason," the Budget memorandum said.

 

The provision of sub-section (4), which allows this benefit only in respect of two of such houses, will continue to apply as earlier.

 

The amendment will take effect from April 1, 2025 and will accordingly apply for assessment year 2025-26 onwards.

 

Ankit Jain, Partner, Ved Jain & Associates, explains this further: 

Previously, an individual could claim up to two properties as ‘self-occupied’ if they were either residing in them or unable to do so due to employment or business requirements in another location. In such cases, the deemed rental value of these properties was considered Nil, and no notional income was added to the owner's taxable income.

 

However, the latest Budget has eased these conditions by removing the requirement of employment or business in another location. Now, an individual can claim any two properties as self-occupied, irrespective of their circumstances, ensuring that no notional rental income is imputed for those properties.

 

This revision provides significant relief not only to the middle class but also to high-net-worth individuals (HNIs), as many people own multiple properties that cannot be rented out due to various constraints such as family usage, legal issues, or unfavorable market conditions.

   

Key Benefits of the New Amendment:

 

Tax Relief for Homeowners: Homeowners who possess more than one self-occupied property can now claim both properties as self-occupied, removing the notional tax burden on them. This creates substantial savings and makes owning multiple homes more financially feasible, especially for the middle class.

 

Encouragement for Homeownership: This change encourages people to invest in homes without the fear of facing additional tax liability on non-rented properties. Families who have invested in second homes, often for investment or personal use, can now enjoy their properties without worrying about tax on notional rental income. This reduction in tax liabilities will free up funds that can be utilized for other needs such as education, health, or retirement savings, further boosting household consumption and well-being.