The budget 2019 proposal for the exemption of notional rent on the second self-occupied house is good news for people looking to buy another house.
Before we begin, let us understand the concept of notional rent. Under the Income-Tax Act if a person owns 2 or more houses, then 1 house is considered as tax-free and the other house at the option of the assesse would be treated as taxable by considering notional rent on that. Notional rent is computed on the basis of Expected Rent (ER) and Gross Annual Value (GAV) of the house property.
The tax exemption earlier applied only to one house. Notional rent was considered as income on the second house and was, therefore, taxable.
This discouraged those who wanted to buy more than one house as an investment, as it meant paying additional tax on the second house, thus negatively affecting the purchase sentiment in the market.
The budget proposal for the exemption of notional rent on the second self-occupied house is good news for people looking to buy another house, or those who have a house in one city but work in another, and hence have a second home there.
The new rule means people will be completely free from paying tax on up to two self-occupied houses. Tax on notional rent will only be applicable if one has a third house or more, which would automatically be considered as having been rented out.
In such a case, one can choose any two houses to be considered as self-occupied, while the third or more will be taxed as per the current provisions.