I own three houses. One is rented and two are unoccupied. How will they be taxed under the Finance Bill 2025?

The existing rule

According to the Income-tax Act, 1961, if an assessee owns more than two house properties, then any additional house property is classified as a "deemed let-out property" and the notional rent attributable to such deemed let-out property is computed per the relevant provisions of the Act.

While calculating such notional rent, the annual value of a house property is deemed to be “NIL” in cases where the property is either self-occupied by the assessee or remains unoccupied due to the assessee’s employment, business, or profession at a different location.

When an assessee owns more than two self-occupied properties, the assessee is entitled to claim self-occupied status, which is restricted to a maximum of two such properties.

The proposed rule in the Finance Bill 2025

To simplify the above-mentioned provisions, the Union Finance Minister, in the Budget 2025 proposed that the annual value of a house property (or part thereof) will be considered “NIL” if the owner occupies it for personal use or is unable to occupy it for any reason.

However, regardless of the amendment proposed by FM Sitharaman, the restriction limiting the number of self-occupied properties to two will remain in force.

The proposed amendment to Section 23(2) of the Income-tax Act, 1961 seeks to simplify the determination of the annual value of house property for tax purposes.

The amendment broadens the scope of eligibility for this benefit by removing the specific requirement that the inability to occupy the property must be due to employment, business, or profession in another location.

Instead, it allows for a more flexible approach by stating that the annual value shall be considered nil if the owner either occupies the house for self-residence or is unable to do so for any reason.

This change simplifies the provision and ensures that taxpayers who are unable to occupy their property for personal reasons, apart from employment or business constraints, can also avail themselves of this benefit.

However, the restriction under Section 23(4) remains unchanged, meaning that an individual can claim this exemption for a maximum of two house properties.

If an individual owns more than two properties, they will need to specify which two will be considered for the nil annual value benefit, while the remaining properties will be subject to tax as per the applicable provisions.

Once the Finance Act 2025 is passed, this amendment will take effect from April 1, 2025, and apply from Assessment Year (AY) 2025-26 onwards.