Notional Rent and Self-Occupied House Provisions under the Income Tax Act, 2025:

 

1.  Introduction:

The Income Tax Act, 2025 has retained and codified the provisions relating to notional rent on residential properties in a simplified and clear manner.

2.  Annual Value:

As per Sec 21(1) of the Act, the annual value of a house property is generally calculated as the higher of the reasonable expected rent or the actual rent received or receivable if the property is let. Taxes levied by local authorities and any unrealized rent are adjusted in computing the annual value (Sec 21(3)).

3.  Self-Occupied Properties:

 As per Sec 21(6) and 21(7), a key relief under the new Act relates to self-occupied houses. If the owner occupies the house for their own residence, or cannot actually occupy it due to any reason, the annual value of the property is taken as nil.

This relief, however, is available only for two houses specified by the assesses. The benefit will not apply if the house or any part of it is actually let during the tax year or if the owner derives any other benefit from it.

4.  Stock in trade:

For houses held as stock-in-trade, Sec 21(5) provides that the annual value is nil for two years from the end of the financial year in which the certificate of completion of construction is obtained from the competent authority.

5.  Important notes on self-occupied properties:

It is important to note that vacant investment properties beyond these two self-occupied houses will continue to attract tax on notional rent.

Also, the relief is limited to self-occupied properties and not vacant properties.

An important point to note that the new Act explicitly covers cases where the intention of the owner is to self-occupy the house but could not do so for some reason.

6.  Conclusion:

The provision for two self-occupied houses essentially codifies the relief introduced earlier through amendments in the Finance Act, with slight enhancements to cover situations where the owner cannot occupy the property.