Deemed Rental Income
Deemed rental income is the notional rent the Income Tax Department imputes on a residential property you own but neither occupy nor let out. Since the Finance Act 2019, you can claim a maximum of TWO houses as self-occupied (annual value NIL); any property beyond that is treated as deemed let-out and notional rent becomes taxable.
What is Deemed Rental Income?
Deemed rental income — formally the “annual value of property deemed to be let out” under Section 23(4) of the Income Tax Act — is a notional rent the Income Tax Department imputes on residential properties you own but neither occupy as your residence nor actually let out. Until AY 2019-20, only ONE property could be treated as self-occupied; the Finance Act 2019 amended Section 23 to allow up to TWO self-occupied houses (each with NIL annual value). The third and every subsequent residential property — vacant flats, second homes left empty for relatives, “investment” flats kept locked — is treated as deemed let-out, and the owner pays tax on rent that was never received.
Why it matters for property buyers
Indian high-net-worth investors and NRIs holding portfolios of 3+ residential properties routinely discover this rule late, often after an AIS-driven notice. The deemed Annual Value is the higher of: (a) Municipal Valuation by the local body (BBMP, MCGM, GHMC, etc.), or (b) Fair Rental Value of comparable properties in the area, subject to a ceiling at Standard Rent under the relevant Rent Control Act. From this you subtract municipal taxes actually paid, then claim a flat 30% standard deduction u/s 24(a) for repairs and maintenance, then deduct home loan interest u/s 24(b). One real silver lining: for deemed let-out properties the interest deduction is UNCAPPED (vs the Rs 2 lakh cap for self-occupied), which is why high-leverage investors sometimes prefer the deemed let-out treatment for the most heavily mortgaged unit.
How to verify or calculate it
Worked example for a Rs 2 crore 3BHK in Whitefield, Bengaluru with comparable rent of Rs 45,000/month:
- Gross Annual Value (GAV) = higher of (BBMP municipal value, fair rental Rs 5.4 lakh) — assume FRV wins at Rs 5,40,000.
- Less: municipal taxes paid (say Rs 28,000) → Net Annual Value (NAV) = Rs 5,12,000.
- Less: 30% standard deduction u/s 24(a) = Rs 1,53,600.
- Less: home loan interest u/s 24(b) — uncapped for deemed let-out. Assume Rs 4,00,000.
- Income from House Property = Rs 5,12,000 − Rs 1,53,600 − Rs 4,00,000 = (−) Rs 41,600 loss, which can be set off against other heads (capped at Rs 2 lakh per year u/s 71).
Pick the two highest-tax-outflow properties to declare self-occupied. Cross-check Fair Rental Value with current listings on 99acres, MagicBricks, NoBroker, and Housing.com for comparable units in the same project or micro-market. Report under “Income from House Property” in ITR-2 or ITR-3. The AIS portal (incometax.gov.in → Services → AIS) now pre-fills rent flows detected from bank deposits and society maintenance records, and discrepancies frequently trigger notices u/s 142(1).
How Brickplot uses Deemed Rental Income in its score
Deemed rental income feeds our Investment Yield & Exit Liquidity axis (5% weight). When we model a project investment thesis for the “Investor” persona, we apply a deemed-rental tax drag to the gross yield. For a Rs 2 crore flat carrying a Rs 1.1 lakh annual deemed rental tax burden, that is roughly 5.5% of gross rent expectation gone before any actual cash rent is collected. This drag flips many speculative “investment” stories in Bengaluru, Pune, and Hyderabad from positive to neutral carry, and we surface that in the project-level investment verdict.
Related terms: Form 26AS (Property), NRI Property Purchase, Capital Gains Tax, Repatriation of Sale Proceeds.
Related terms
Brickplot verifies deemed rental income disclosures on every reviewed project as part of the independent 11-axis score. No builder commissions. No editorial override.