Two Properties Self-Occupied

What is This Hack?

Declare both properties as self-occupied from AY 2026-27 to eliminate notional rent income on second property, saving tax on deemed letting

How It Works

Budget 2024 brought a HUGE relief for taxpayers owning two residential properties. Earlier, only ONE property could be treated as self-occupied. The second property (even if genuinely vacant or used by family) was treated as "deemed let out" - meaning you had to pay tax on notional rent (Annual Letable Value) even if you received ZERO actual rent. From Assessment Year 2026-27 (FY 2025-26), you can now declare TWO properties as self-occupied. No notional rent income on second property. Both properties will show zero income under "Income from House Property". You can claim home loan interest deduction up to ₹2 lakh combined for both properties (if self-occupied). This is a massive cash flow benefit for families with ancestral property + new home, vacation homes, properties in different cities, or properties held for children. Note: This doesn't apply to NRIs - they still have different rules.

Real Example: Engineer with Ancestral Home + New Flat

Situation

Sanjay owns two properties: (1) Ancestral home in Pune (inherited, no loan, Annual Letable Value ₹3 lakh). (2) New flat in Bangalore where he works (home loan outstanding, ₹2.5L annual interest). His family occasionally uses Pune home for vacations - no rent received. He's in 30% tax bracket.

Without This Hack

FY 2024-25 (old rule): Property 1 (Pune): Can declare self-occupied. Income: Nil. Property 2 (Bangalore): Must declare deemed let-out. Notional rent income: ₹3 lakh. Less: Municipal tax ₹20K + 30% standard deduction ₹84K = ₹1.96L taxable. Tax liability: ₹1.96L × 30% = ₹58,800 despite receiving ZERO actual rent!

With This Hack

FY 2025-26 onwards (new rule): Property 1 (Pune): Self-occupied. Income: Nil. Property 2 (Bangalore): ALSO self-occupied now. Income: Nil. Total house property income: Nil. Home loan interest ₹2.5L → can claim ₹2L loss. Set off against salary income. Tax saved: ₹2L × 30% = ₹60,000. Plus eliminated ₹58,800 tax on notional rent. Total benefit: ₹1.18 lakh tax saved annually!

💰 ₹1.18 lakh annual tax saving + zero tax on notional rent

Common Pitfalls to Avoid

Applicable only from FY 2025-26 (AY 2026-27) - NOT for current FY 2024-25
Only TWO properties can be self-occupied - if you own 3+, third onwards is still deemed let-out
Both properties must NOT be actually rented out - hiding rental income is tax evasion
Home loan interest deduction is ₹2L COMBINED for both properties (not ₹2L each)
NRIs cannot claim two self-occupied - different rules apply for NRIs
If property is actually let-out for part of year, proportionate deemed rent applies
Property should be residential - commercial property has different taxation

Prerequisites & Requirements

Resident Indian (not NRI)
Own at least two residential properties in India
Both properties genuinely self-occupied or lying vacant (not rented out)
Applicable from Financial Year 2025-26 onwards (ITR filed in 2026)
File ITR-2 (ITR-1 not applicable for property owners)
Maintain ownership documents and property tax receipts
No rental income received from either property

Key Benefits

Potential savings: ₹1-3 lakhs annually
Implementation time: Immediate
Legal status: fully legal
Risk level: low

Related Hacks

Joint Home Loan Doubling

Double tax benefits: Both co-borrowers claim separately

Section 54 Two Properties

Buy two residential properties for LTCG exemption

₹12 Lakh Tax-Free Target

Zero tax on ₹12 lakh income from FY 2025-26

Step-by-Step Guide

Verify Effective Date

IMPORTANT: This benefit applies from Assessment Year 2026-27 (FY 2025-26 onwards). For FY 2024-25 (ITR filed in 2025), old rules still apply - only one property can be self-occupied. Plan accordingly.

Identify Your Two Properties

You can have MORE than two properties, but only TWO can be declared self-occupied. Choose the two properties strategically: Properties with higher notional rent (metro cities), Properties with home loan interest (to claim deduction), Properties genuinely self-occupied. Remaining properties (if any) will still be deemed let out.

Ensure Properties are Not Actually Let Out

Both properties must be genuinely self-occupied or lying vacant. If you're actually receiving rent from any property, it MUST be shown as let-out (not self-occupied). Tax evasion by hiding rental income is illegal.

Calculate Home Loan Interest

If you have home loans on one or both properties, calculate total interest paid in the FY. You can claim up to ₹2 lakh COMBINED for both properties under Section 24(b). If interest exceeds ₹2L, loss can be set off against other income up to ₹2L limit.

File ITR-2 Declaring Both Self-Occupied

In ITR-2 (not ITR-1, as you have property income), select "Self-Occupied" for both properties under House Property schedule. Show Annual Value as ZERO for both. Claim home loan interest deduction (if applicable) up to ₹2L combined. Net income from house property: Nil or loss (if loan interest claimed).

Maintain Property Documents

Keep ready: Sale deeds/ownership documents for both properties, Home loan statements (if applicable), Municipal tax receipts, Property tax payments proof. IT department may scrutinize if you claim two self-occupied properties to ensure no rental income is hidden.