Second Self-occupied House Property Exempted from Deemed Rental Income

Taxability of deemed rental income, on account of notional rent of second self-occupied house property, has been exempted from tax liability, under Section 23 of the Income Tax Act, 1961, by the amendments made by the Finance Act, 2019, in line with the proposals made by Finance Minister Sh. Piyush Goyal while presenting the Budget 2019.

As per Section 23 of the Income Tax Act, 1961, only one property is treated as a self-occupied property by choice of taxpayer and the other one is considered as let out, where more than one self-occupied house properties are owned by the taxpayer. However, after the amendments of Finance Act 2019, in this regard, such second self occupied property shall not be subjected to tax liability for deemed rental income u/s 23.

For the purpose, Sections 23 & 24 of the Income Tax Act, 1961 have been amended vide Sections 4 & 5 of the Finance Act 2019, applicable from FY 2019-20/ AY 2020-21 and onwards, as under:

1. “In section 23 of the Income-tax Act, with effect from 01/04/2020,-

(a) in sub-section (4),-

(i) in the opening portion, for the words “one house”, the words “two houses” shall be substituted;

(ii) in clause (a), for the word “one”, the word “two” shall be substituted;

(iii) in clause (b), for the words “other than the house”, the words “other than the house or houses” shall be substituted;

(b) in sub-section (5), for the words “one year”, the words “two years” shall be substituted.”

2. “In section 24 of the Income-tax Act, with effect from 01/04/2020,-

(a) in the first proviso, after the words “the amounts of deduction”, the words “or, as the case may be, the aggregate of the amount of deduction” shall be inserted;

(b) in the second proviso, after the words “the amount of deduction”, the words “or, as the case may be, the aggregate of the amounts of deduction” shall be inserted;

(c) after the Explanation to the third proviso, the following proviso shall be inserted, namely:-

Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.”

Accordingly, from from FY 2019-20/ AY 2020-21 and onwards, no income tax is payable on notional rent of the second self occupied property owned by the taxpayer. This amendment is likely to provide relief to the middle class families who are required to maintain families/ houses at two different locations on account of their job, children’s education, care of parents, etc.

Now an assessee can claim that he has two self-occupied house properties and hence deduction with respect to interest on borrowed capital for self occupied house property can be claimed with respect to both the houses. However, there is no change in the aggregate limit for the deduction on account of interest which remains the same, i.e., Rs. 2,00,000.