Self-occupied property

Not every house a person owns is taxed the same way. One category, self-occupied property, gets favourable treatment: its annual value is treated as nil.

Until recently, claiming a house as self-occupied needed a reason: living in it, or being unable to because of work elsewhere. The Finance Act, 2025 removed that condition.

The old rule. Before FY 2025-26, a house counted as self-occupied only if the owner actually lived in it, or could not occupy it because of employment, business or profession carried on elsewhere.

The new rule, from the Finance Act, 2025. A house is now self-occupied simply if it is actually occupied by the owner, or cannot be occupied for any other reason — a broader test that no longer demands a specific excuse.

Up to two houses. An assessee can choose any two houses that are not actually let out to be treated as self-occupied. Any other houses the assessee owns, if not actually let out, are then treated as deemed let-out instead, and taxed on a notional rent.

Choosing which two matters. A deemed let-out property is taxed on its reasonable expected rent, whether or not any rent is actually received. It pays to select as self-occupied the two houses with the highest notional rent, since a self-occupied property's annual value is nil regardless of what it could have fetched.

The workbook's own case: Mr P owns four house properties — A, B, C and D. He lives in A; B is actually let out; C and D are not let out at all.

B is taxed as let-out property, on the rent actually received; there is no choice here.

Of the remaining three, A, C and D, Mr P can select any two as self-occupied. If he selects A and D, C becomes deemed let-out, taxed on its reasonable expected rent even though no rent is actually collected from it.

If C would fetch a notional rent of Rs 3,00,000 a year and D only Rs 1,80,000, Mr P is better off selecting A and C as his two self-occupied properties instead, leaving D as the deemed let-out one, since this minimises the notional rental income he is taxed on.

Chapter 7 (Concepts of Taxation), the sub-section on "Computation of income from house property," states the two-house self-occupation rule and the Finance Act, 2025 simplification, immediately before working through Mr P's four-property example. Expect a scenario with 3 or more properties, testing whether the candidate can correctly select which two minimise the deemed-let-out tax exposure.

• The Finance Act, 2025 removed the old "occupation prevented by employment elsewhere" condition. A house now qualifies simply if it is occupied, or cannot be occupied, for any reason.
• The two-house limit is a ceiling, not automatic. An assessee with only one house that is not let out does not need to "use up" a second slot.
• A property that is actually let out can never be chosen as self-occupied, however briefly it was let, as Mr P's house B shows.
• Choosing the wrong two properties as self-occupied does not reduce tax; it can increase it, by leaving a higher-notional-rent property as deemed let-out instead of a lower one.