notional rent on house property

Claim a notional rent on house property as taxable income in India

According to the Income from House Property tutorial by the Central Board of Direct Taxes, rental income of a person other than the owner cannot be charged to tax under the head “Income from house property”. However, if a person owns more than two house properties and does not let out any of them, then one of them is considered as self-occupied and the other one is considered as deemed to be let out and taxed accordingly.

The income from a deemed to be let out property is calculated on the basis of notional rent, which is the rent that a similar property can fetch in the same or similar locality. The notional rent is determined by taking the higher of the fair rent or the municipal value, and then comparing it with the standard rent fixed by the Rent Control Act. The lower of these two values is the gross annual value of the property.

From the gross annual value, municipal taxes paid by the owner are deducted to arrive at the net annual value. From the net annual value, a standard deduction of 30% and interest on home loan (if any) are deducted to arrive at the income from house property. This income is taxable as per the income tax slabs applicable to the owner.

However, from FY 2019-20 onwards, a homeowner can claim two properties as self-occupied and need not pay any taxes on them. The notional rent on the second property will be exempted from taxation