Own Two Homes? Finance Act 2025 Lets You Claim Nil Annual Value on Both Self-Occupied Houses Under Section 23

For decades, Indian income-tax law let a person treat only one house as self-occupied with a nil annual value; any second property they owned was taxed on a notional rent even if it stood empty. The Finance Act 2019 relaxed this to two houses from Assessment Year 2020-21, but attached a condition. The Finance Act 2025 has now removed that condition entirely: from Assessment Year 2025-26 onwards, Section 23(2) of the Income-tax Act 1961 allows the annual value of up to two self-occupied house properties to be taken as nil, with no requirement that you could not occupy the second home because of employment or business carried on elsewhere.

The practical effect is significant for anyone declaring income from house property. If you own a flat in your home city and a second home in your native town, both can now sit at a nil annual value under Section 23(2), so long as neither is actually let out during the year and you derive no other benefit from it. This article explains the statutory text, works through a numeric example for an income of Rs 16,00,000, lists the mistakes that surface most often in Income Tax Department scrutiny, and answers the questions readers ask most.

What the Section Says

Section 23 of the Income-tax Act 1961 governs how the "annual value" of a house property is determined, and Section 23(2) carves out the self-occupied concession. In plain English, the sub-section says that where a house (or part of it) is in the occupation of the owner for their own residence, or cannot actually be occupied by the owner, the annual value is taken as nil. Before the Finance Act 2025, the second limb, "cannot actually be occupied", carried the rider that the non-occupation had to be "by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place". That employment-linked condition has now been deleted, effective 1 April 2025 (relevant from Assessment Year 2025-26).

Two guardrails remain unchanged. First, the nil annual value is capped at two houses; if you own three or more residences, you must pick any two as self-occupied and the balance are treated as "deemed let out" with a notional annual value under Section 23(1). Second, the concession applies only where the property "is not actually let out during the whole or any part of the previous year and no other benefit therefrom is derived by the owner", the exact language the Income Tax Department reproduces in its "Income from House Property" tutorial on incometaxindia.gov.in.

A nil annual value does not, by itself, save tax; the deduction that does is the housing-loan interest under Section 24(b). For a self-occupied property, Section 24(b) caps the interest deduction at Rs 2,00,000 per financial year (or only Rs 30,000 in specified cases, such as a loan taken before 1 April 1999 or where construction is not completed within five years of the end of the financial year in which the capital was borrowed). Crucially, this Rs 2,00,000 ceiling is an aggregate across both self-occupied houses, not Rs 2,00,000 per house. It is also available only under the old tax regime; the new regime under Section 115BAC does not permit a Section 24(b) deduction on self-occupied property.

If you are weighing whether the old regime still works for you after this change, our old versus new regime calculator and the income tax calculator let you test both outcomes side by side. For the underlying concept of notional rent, see our glossary entry on deemed income.

Worked Example

Consider Ananya, a salaried professional for Assessment Year 2026-27 (Financial Year 2025-26) with a gross salary of Rs 16,00,000. She owns two homes: a flat in Mumbai on which she pays home-loan interest of Rs 2,10,000 a year, and a second house in Pune on which she pays interest of Rs 1,40,000 a year. She occupies the Mumbai flat and keeps the Pune house for family visits; neither is let out. She files under the old regime and claims Rs 1,50,000 under Section 80C.

Under the post-Finance Act 2025 position, both houses carry a nil annual value. Her combined interest is Rs 3,50,000, but Section 24(b) caps the self-occupied deduction at Rs 2,00,000. That produces a house-property loss of Rs 2,00,000, which she sets off against salary under Section 71B. Her tax works out as follows.

The slab computation on Rs 12,00,000 is Rs 12,500 (5% on the Rs 2,50,000 to Rs 5,00,000 band), plus Rs 1,00,000 (20% on the Rs 5,00,000 to Rs 10,00,000 band), plus Rs 60,000 (30% on the Rs 10,00,000 to Rs 12,00,000 band), totalling Rs 1,72,500 before cess.

Now compare this with the pre-amendment world, where the Pune house would have been "deemed let out" because Ananya's non-occupation was not caused by employment elsewhere. Assume an expected rent of Rs 3,60,000 for the Pune house. Its taxable income becomes Rs 3,60,000 minus the 30% standard deduction of Rs 1,08,000 minus interest of Rs 1,40,000, equal to Rs 1,12,000. Her net house-property figure is Rs 1,12,000 minus the Rs 2,00,000 loss on Mumbai, a net loss of Rs 88,000, and her taxable income rises to Rs 13,12,000.

The Finance Act 2025 amendment saves Ananya Rs 34,944 for the year in this illustration, entirely by removing the notional rent on her second home. Note that under the new regime the nil annual value still applies, but she would forfeit the Rs 2,00,000 interest deduction, so a borrower with a large home loan should model both paths on the income tax calculator before choosing.

Common Mistakes

The first and most frequent error, flagged repeatedly in Income Tax Department scrutiny of Assessment Year 2024-25 returns, is treating the Rs 2,00,000 interest cap as available per house. It is not: Section 24(b) caps the aggregate self-occupied interest at Rs 2,00,000, so combined interest of Rs 3,50,000 still yields only a Rs 2,00,000 deduction. Claiming Rs 4,00,000 for two homes invites a disallowance and interest under Section 234B.

A second mistake is claiming the Section 24(b) interest under the new regime. Because the new regime under Section 115BAC withdraws the Section 24(b) deduction on self-occupied property, taxpayers who default into the new regime, which has been the default since Assessment Year 2024-25, cannot claim the Rs 2,00,000. The nil annual value under Section 23(2) still holds, but the loss it would have created disappears. Confirm your choice with the old versus new comparison tool.

Third, owners of three or more houses sometimes leave the "deemed let out" property out of the return entirely. Under Section 23(4), only two houses can be self-occupied; the third must be offered to tax on its notional annual value, and the Annual Information Statement now cross-references municipal and registry data, so omissions are increasingly detected. See our glossary note on tax deduction heads to see where each figure belongs.

Fourth, taxpayers forget that a house-property loss can be set off against other income only up to Rs 2,00,000 in a year under Section 71B; any unabsorbed loss is carried forward for eight assessment years and set off only against income from house property. Record the carry-forward in Schedule CFL of the ITR, or the benefit lapses.

FAQ

Does the nil annual value under Section 23(2) apply automatically from Assessment Year 2025-26?

Yes. The Finance Act 2025 amendment took effect from 1 April 2025 and applies from Assessment Year 2025-26 (Financial Year 2024-25) onwards. You simply declare up to two houses as self-occupied in Schedule HP of your ITR; there is no separate application. The property must not be let out at any time during the year and you must derive no other benefit from it, per Section 23(2) read with the Income Tax Department tutorial on incometaxindia.gov.in.

Can I claim the Rs 2,00,000 interest deduction on both self-occupied houses separately?

No. Section 24(b) fixes an aggregate ceiling of Rs 2,00,000 across all self-occupied properties for a financial year, not per house. If you pay Rs 1,40,000 on one home and Rs 1,10,000 on another, your combined claim is capped at Rs 2,00,000, not Rs 2,50,000. In certain older-loan cases the cap is only Rs 30,000.

I own three houses. How are they taxed after Finance Act 2025?

Two of the three can be treated as self-occupied with nil annual value under Section 23(2); you may choose whichever two are most tax-efficient. The third is "deemed let out" under Section 23(4) and taxed on its expected rent, against which you can claim the 30% standard deduction under Section 24(a) and the full, uncapped interest under Section 24(b).

Does this concession work under the new tax regime?

The nil annual value under Section 23(2) applies in both regimes, so you pay no notional rent on your second home either way. However, the new regime under Section 115BAC does not allow the Section 24(b) interest deduction on self-occupied property, so the Rs 2,00,000 loss benefit exists only under the old regime. Compare both on our old versus new regime calculator.

What happens to home-loan interest above Rs 2,00,000 on a self-occupied house?

Any self-occupied interest above the Rs 2,00,000 aggregate ceiling under Section 24(b) is simply not deductible and cannot be carried forward. This differs from a let-out property, where interest is deductible in full and the resulting loss can be carried forward for eight years under Section 71B, subject to the Rs 2,00,000 annual set-off limit against other heads.

If I later sell one of these self-occupied houses, how is the gain taxed?

The sale is taxed as a capital gain, not under the house-property head. A residential house held for more than 24 months is a long-term capital asset taxed at 12.5% without indexation (or 20% with indexation for properties acquired before 23 July 2024) under the Budget 2024 rules, with reinvestment relief available under Sections 54 and 54EC. Estimate the liability on our capital gains calculator.

Do I need to keep proof that the second house is genuinely self-occupied?

Yes. Because the annual value hinges on the house not being let out and no benefit being derived, retain electricity bills and municipal tax receipts. The Assessment Year 2025-26 utility validates the two-house self-occupied claim against the Annual Information Statement, so documentation matters if the return is picked for verification.