Simplified Taxation for Self-Occupied House Property: Budget 2025 Update
The Union Budget 2025 has introduced a significant simplification in the taxation of self-occupied house property under Section 23 of the Income Tax Act. The proposed amendment aims to ease the compliance burden for homeowners and ensure clarity in determining the annual value of such properties.
Currently, as per Section 23(2) of the Act, the annual value of a house property is considered nil if:
- The property is self-occupied by the owner for residential purposes, or
- The owner is unable to occupy the property due to employment, business, or profession at another location.
Further, under Section 23(4), this benefit is available only for two such house properties, as specified by the owner.
Amendment in Budget 2025
To simplify this provision, the amendment modifies Section 23(2) by removing the specific conditions regarding employment or business relocation. Under the revised provision, the annual value of a house property shall be deemed as nil if the owner:
- Occupies it for self-residence, or
- Cannot occupy it for any reason (not limited to employment or business).
However, the restriction under Section 23(4) remains unchanged. That is, the benefit of nil annual value continues to apply only to two house properties of the owner’s choice.
Illustrative Examples
Example 1: Single Self-Occupied Property
Mr. A owns a house in Delhi and resides in it. Since it is a self-occupied property, the annual value is nil, and no notional rent is applicable.
Example 2: Two Self-Occupied Properties
Ms. B owns two houses—one in Mumbai and one in Pune. She resides in Mumbai and occasionally visits Pune. As per Section 23(4), she can specify both properties as self-occupied, and their annual value will be considered nil.
Example 3: Multiple Properties – Limitation of Section 23(4)
Mr. C owns three houses—one in Bangalore (where he lives), one in Chennai, and one in Hyderabad. He can claim only two properties as self-occupied. The third house, whether rented or vacant, will be deemed let-out, and notional rent will be calculated for taxation purposes.
Impact of the Amendment
- Greater Flexibility: Homeowners no longer need to justify non-occupation due to employment or business at another location.
- Simplified Compliance: Removes ambiguity by allowing nil annual value for self-occupied properties irrespective of the reason for non-occupation.
- No Change in the Two-House Limit: Taxpayers must still specify two houses for this benefit; additional houses will be taxed as per notional rent.
Effective Date
This amendment will come into force from April 1, 2025, and will apply to Assessment Year 2025-26 onwards.
Conclusion
The Budget 2025 amendment to Section 23 provides much-needed relief to homeowners by simplifying the determination of the annual value of self-occupied properties. While the restriction on claiming the benefit for only two houses remains, the removal of rigid conditions for non-occupation enhances flexibility and eases tax compliance.
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