Under Section 23(2)(b) of the Income Tax Act, 1961, a house property which is not actually occupied by the owner owing to employment or business/professional carried on at any other place is deemed to be let out for the purposes of income tax. This means that the owner is taxed on the notional rent of the property, even though it is not actually rented out.

To qualify for this treatment, the following conditions must be satisfied:

• The owner must be employed or carrying on a business or profession at a place other than the property.
• The owner must be residing at that other place in a building not belonging to him.

If these conditions are met, then the owner is deemed to have let out the property for the entire period of the year, even if it was actually vacant for some or all of that time. The notional rent of the property is determined by the municipal valuation of the property.

There are some deductions that can be claimed against the notional rent of the property, including municipal taxes, interest on a home loan, and standard deduction of 30%.

Here is an example of how the deemed to be let out provisions of Section 23(2)(b) work:

• A taxpayer owns a house in Chennai, but he is employed in Bangalore and therefore resides in a rented house there.
• The municipal valuation of the Chennai property is Rs. 10,000 per year.
• The taxpayer can claim the following deductions against the notional rent of Rs. 10,000:
  • Municipal taxes: Rs. 2,000
  • Interest on home loan: Rs. 3,000
  • Standard deduction: Rs. 3,000 (30% of Rs. 10,000)

 EXAMPLE

Under Section 23(2)(b) of the Income Tax Act, 1961, a house property which is not actually occupied by the owner owing to employment or business/professional carried on at any other place is deemed to be let out for the purposes of income tax. This means that the owner is taxed on the notional rent of the property, even though it is not actually rented out.

To qualify for this treatment, the following conditions must be satisfied:

• The owner must be employed or carrying on a business or profession at a place other than the property.
• The owner must be residing at that other place in a building not belonging to him.

If these conditions are met, then the owner is deemed to have let out the property for the entire period of the year, even if it was actually vacant for some or all of that time. The notional rent of the property is determined by the municipal valuation of the property.

There are some deductions that can be claimed against the notional rent of the property, including municipal taxes, interest on a home loan, and standard deduction of 30%.

Here is an example of how the deemed to be let out provisions of Section 23(2)(b) work:

• A taxpayer owns a house in Chennai, but he is employed in Bangalore and therefore resides in a rented house there.
• The municipal valuation of the Chennai property is Rs. 10,000 per year.
• The taxpayer can claim the following deductions against the notional rent of Rs. 10,000:
  • Municipal taxes: Rs. 2,000
  • Interest on home loan: Rs. 3,000
  • Standard deduction: Rs. 3,000 (30% of Rs. 10,000)
• The taxpayer’s taxable income from house property would be Rs. 2,000 (Rs. 10,000 – Rs. 8,000).

                           FAQ QUESTIONS 

Example:

A taxpayer owns a house in Mumbai, India. However, the taxpayer is employed in Bangalore and lives in a rented apartment there. The taxpayer’s house in Mumbai is therefore considered to be an unoccupied house property under Section 23(2)(b) of the Income Tax Act, 1961.

Deductions:

The taxpayer can claim the following deductions from the gross annual value of the unoccupied house property:

• Municipal taxes: The taxpayer can deduct the amount of municipal taxes paid on the property.
• Standard deduction: The taxpayer can deduct a standard deduction of 10% of the gross annual value of the property.
• Interest on borrowed money: If the taxpayer has borrowed money to purchase or construct the property, they can deduct the interest paid on the loan.

Taxable income:

The taxable income from the unoccupied house property is the gross annual value of the property minus the allowable deductions.

Example calculation:

Gross annual value of the property: Rs. 1, 00,000 Municipal taxes: Rs. 5,000 Standard deduction: Rs. 10,000 Interest on borrowed money: Rs. 20,000

Taxable income from the unoccupied house property: Rs. 1, 00,000 – Rs. 5,000 – Rs. 10,000 – Rs. 20,000 = Rs. 65,000

State-specific rules:

There are no state-specific rules for unoccupied house properties in India. However, the taxpayer should check with their local tax authority to make sure there are no additional requirements.

                          CASE LAWS

Q1. What is the meaning of “unoccupied house property” under Section 23(2)(b) of the Income Tax Act?

A1. An unoccupied house property is a property that is owned by an individual but is not actually occupied by them for residential purposes. This could be because the owner is employed or carries on a business or profession at a different place and resides there in a building not owned by them.

Q2. How is income from an unoccupied house property taxed?

A2. Income from an unoccupied house property is deemed to be equal to the “annual value” of the property. The annual value is a hypothetical rent that the property could fetch if it were let out.

Q3. What deductions are available for an unoccupied house property?

A3. The following deductions are available for an unoccupied house property:

• Municipal taxes paid on the property
• Interest on a loan taken to purchase or construct the property
• Standard deduction of 30% of the net annual value of the property

Q4. How is the standard deduction calculated for an unoccupied house property?

A4. The standard deduction for an unoccupied house property is calculated as follows:

Standard deduction = 30% of (Gross annual value – Municipal taxes)

Q5. Can I claim deductions for repairs and maintenance expenses incurred on an unoccupied house property?

A5. No, you cannot claim deductions for repairs and maintenance expenses incurred on an unoccupied house property.

Q6. What is the difference between an unoccupied house property and a self-occupied house property?

A6. A self-occupied house property is a property that is owned and occupied by an individual for residential purposes. Income from a self-occupied house property is not taxable.

Q7. What if I own more than two house properties?

A7. If you own more than two house properties, then one of the properties is deemed to be self-occupied, even if you do not actually occupy it. The remaining properties are deemed to be let out, and the income from these properties is taxable.

                               CASE LAWS

• CIT v. K.N. Govindaswamy Naidu (2005) 275 ITR 240 (SC): The Supreme Court held that the owner of a house property is entitled to deduction under section 24(1)(a)(i) of the Income Tax Act, 1961, in respect of municipal taxes paid by him, even if the property is not actually occupied by him due to his employment or business/professional carried on at any other place.
• ITO v. Smt. Swaran Lata (2004) 127 Taxman 425 (ITAT Delhi): The Income Tax Appellate Tribunal (ITAT) held that the owner of a house property is entitled to deduction under section 24(1)(a)(i) of the Income Tax Act, 1961, in respect of municipal taxes paid by him, even if the property is not actually occupied by him due to his employment or business/professional carried on at any other place. The ITAT further held that the deduction is allowable even if the property is let out during a part of the year.
• ITO v. Dr. S.K. Gupta (2003) 125 Taxman 491 (ITAT Delhi): The ITAT held that the owner of a house property is entitled to deduction under section 24(1)(a)(i) of the Income Tax Act, 1961, in respect of municipal taxes paid by him, even if the property is not actually occupied by him due to his employment or business/professional carried on at any other place. The ITAT further held that the deduction is allowable even if the property is let out during a part of the year.