Meera's key ring will carry two sets once she moves: one for the twelfth-floor 3BHK near Dombivli, and one for the older Thane flat she is not ready to sell. She has already heard three confident answers about the tax on second house property. A colleague said an empty flat is taxed on rent it never earns. Her broker said the tax was coming anyway, so she might as well find a tenant. A cousin said nothing is taxed until you sell. The real answer turns on how many houses she owns, and whether a tenant moves in at any point in the tax year.
Key takeaways
- Under section 21 of the Income-tax Act, 2025, in force from 1 April 2026, up to two houses that you occupy as your residence, or cannot actually occupy for any reason, have a nil annual value, so an empty second flat that is never let is not taxed on notional rent.
- A third or later house is valued at the rent it might reasonably be expected to fetch, and that figure is taxed whether or not a tenant ever pays it.
- A house let out at any time in the tax year loses its nil value for that year and is taxed under both regimes, normally on its rent less the municipal taxes actually paid and a flat 30 percent.
- Under the old regime, interest on loans for self-occupied houses is deductible up to Rs 2 lakh a year across both together; the new regime, now the default, allows none and does not let a house property loss reduce salary or other income.
- Letting a flat in Maharashtra also means a written leave and licence agreement that the landlord must have registered under section 55 of the Maharashtra Rent Control Act, 1999, and a society non-occupancy charge of at most 10 percent of the service charges.
Meera's two flats
Meera (illustrative, as our stories always are) cleared the loan on her Thane 2BHK years ago. The new 3BHK is in a KDMC tower near Dombivli, booked only after the further commencement certificate for its upper floors appeared on MahaRERA and in the authority's own system, and its home loan will cost her well over Rs 2 lakh a year in interest. She would like the old flat free for family visits; it could let for about Rs 30,000 a month, and it carries about Rs 12,000 a year of property tax. Names and numbers in this story are illustrative.
Time-poor as ever, she left the question to her broker, whose case rested on one sentence: an empty flat is taxed anyway, so it may as well earn something. For an owner of two houses, that sentence is wrong.
What the law taxes, in plain words
House property is taxed on its annual value: the higher of what the house might reasonably be expected to let for in a year and the rent it actually earns, less the municipal taxes the owner paid during the tax year. The law then deducts a flat 30 percent, and interest on any loan taken for the property. Since 1 April 2026 these rules sit in sections 21 and 22 of the Income-tax Act, 2025, which replaced sections 23 and 24 of the 1961 Act.
Under section 21, a house has a nil annual value if you occupy it as your residence, or cannot actually occupy it for any reason. That second limb once covered only an owner living elsewhere for employment, business or profession; the Finance Act 2025 widened it to any reason from 1 April 2025, and the new Act keeps that wording. The nil value applies to at most two houses, which the owner specifies, and is lost for any house actually let at any time in the tax year, or from which the owner derives any other benefit.
So Meera's old flat, empty and never let, has a nil annual value. A third house would be valued at the rent it might reasonably fetch and taxed on that figure whether or not a tenant pays it: what tax practice calls a deemed let-out house.
An analogy: the fixed charge on an electricity bill
An electricity bill carries a fixed charge because the connection exists, whether or not a single unit is used. The notional rent on a third house works the same way: it is charged because the house could be let, not because any rent arrived. The law waives that fixed charge for two homes. Both of Meera's flats sit inside the waiver; a third would pay it every year, lived in or not.
How it works in practice
Let all year at Rs 30,000 a month, the flat's annual value is Rs 3,60,000 less Rs 12,000 of property tax, or Rs 3,48,000. The flat 30 percent takes off Rs 1,04,400, leaving Rs 2,43,600 of taxable income; with the old loan repaid, there is no interest to deduct.
Let for only six months, it still counts as let for the year, so the nil value is gone. Section 21's vacancy rule then applies: where a let property stands vacant for part of the year and the rent received falls short of the expected rent because of it, the rent actually received is the annual value. Rs 1,80,000, less the property tax and the 30 percent, leaves Rs 1,17,600.
Source: Income-tax Act, 2025, sections 21 and 22, tax year 2026-27; ReraGenie arithmetic on an illustrative rent, with the expected rent assumed equal to the market rent
At a 30 percent tax rate, letting all year costs Rs 73,080 out of Rs 3.6 lakh of rent. The third-house case costs the same, out of rent that never arrived; the chart assumes the expected rent equals what Meera could actually get.
One month of letting, including a short stay booked through an app, takes a flat out of the nil rule for the whole tax year, because section 21 withdraws it from any house actually let at any time in the year, or from which the owner derives any other benefit. Decide whether the flat is a home or a rental before a tenant, however brief, is handed the keys.
The loan on the new flat, and the regime choice
Under the old regime, interest on the flat Meera lives in is deductible up to Rs 2 lakh a year, one ceiling shared by both self-occupied homes. On a Rs 70 lakh loan at 8 percent over 20 years, first-year interest is about Rs 5.5 lakh, so the ceiling usually binds. It applies only if the flat is completed within five years from the end of the tax year in which the loan was taken. Interest paid during construction becomes deductible once the flat is complete, and the Finance Act 2026 wrote into section 22 that it counts within the same Rs 2 lakh.
Under the new regime, now the default and set out in section 202 of the 2025 Act, interest on a self-occupied house is not deductible at all, and letting the old flat changes none of this. Where the regimes part company is a loan on a let house, and the table sets out how.
| Meera's situation | Old regime | New regime, the default |
|---|---|---|
| Old flat empty all year, one of two homes | Nil annual value, no tax | Nil annual value, no tax |
| Old flat let out | Rent less municipal tax paid, less 30 percent, taxed at her rate | Same computation, taxed at the new regime's rates |
| Interest on the new flat's loan | Deductible up to Rs 2 lakh a year, across both homes together | Not deductible |
| Interest on a loan for a let flat | Deductible against its rent | Deductible against its rent |
| A loss from house property | Reduces other income by up to Rs 2 lakh a year; the rest is carried forward for eight years | Cannot reduce salary or other income |
| A third house, empty | Taxed on the rent it might reasonably fetch | Taxed on the rent it might reasonably fetch |
Whether Rs 2 lakh of deduction is worth giving up the new regime's rates is a question about the whole return. See how the deduction changes the arithmetic of prepaying, and joint ownership for how co-owners claim it.
What the flat earns, and why owners keep it
Rent is a thin slice of what a Thane flat is worth. ANAROCK put the average residential rental yield in Thane at 3.25 percent in Q1 2024, against 4.15 percent in Mumbai and 3.85 percent in Pune. Prices moved much faster: ANAROCK reported in July 2025 that average residential prices in Thane rose 46 percent between Q2 2022 and Q2 2025.
Source: ANAROCK, average residential rental yields, Q1 2024, as reported by Business Standard in April 2024
That gap is why many owners keep the old flat, and why the tax on its rent decides whether letting is worth it. Meera's Rs 3.6 lakh a year on a flat worth about Rs 1.1 crore is a gross yield near 3.3 percent, and after Rs 73,080 of tax it leaves about Rs 2.87 lakh a year, before brokerage, registration and any non-occupancy charge. The rent-or-buy arithmetic sets these yields against the cost of a loan.
What keeping it costs beyond income tax
The society's maintenance bill does not stop because nobody lives in the flat, and letting adds two Maharashtra obligations. A state government directive of 1 August 2001 under section 79A of the Maharashtra Co-operative Societies Act, 1960 caps a society's non-occupancy charge at 10 percent of the service charges, and rules it out where the member has given the flat to close relatives such as a parent, child, sibling or grandchild. What a society may lawfully collect covers the rest of the bill.
Section 55 of the Maharashtra Rent Control Act, 1999 requires every leave and licence agreement to be in writing and registered under the Registration Act, 1908, and makes registration the landlord's responsibility. Without a registered agreement, the tenant's or licensee's version of the terms prevails unless proved otherwise, and a landlord in breach can face imprisonment of up to three months, a fine of up to Rs 5,000, or both. A later sale is a separate question: capital gains on sale of house.
Where owners get it wrong
Assuming an empty flat is always tax-free. Only up to two houses. A third, empty or lived in, is taxed on the rent it might fetch, which is worth knowing before a holiday home in the belt around Mumbai and Pune becomes house number three.
Letting it between family visits. Any letting in the tax year ends the nil value for the whole year.
Deducting the society bill from the rent. The flat 30 percent stands in for upkeep; besides it, only municipal taxes paid and loan interest come off.
Leaving the agreement unregistered. In Maharashtra the duty, and the penalty, are the landlord's.
What Meera decided
Her chartered accountant replaced the broker's sentence with arithmetic. With two houses the empty flat cost her nothing in income tax, so the real choice was about Rs 2.87 lakh a year of rent after tax against a home for family visits, and she chose to keep it for family visits, at least for the first year. Her return will be run under both regimes, because her new flat's interest deduction exists only under the old one.
Before you buy the next home: what the report shows
For a buyer still choosing the new flat, completion is a tax date: under the old regime the loan's interest starts counting from it, and the Rs 2 lakh ceiling depends on it falling within five years from the end of the tax year in which the loan was taken. That date is worth reading from the filing rather than the brochure. For any covered Maharashtra project, the Rs 499 ReraGenie buyer report sets out:
- The possession story: the first promised completion date against the current one.
- Construction pace against the district: how this project's filed progress compares with others in its district, a test of whether the current date is plausible.
- Rights under RERA, with a worked delay-interest example: what a late handover entitles you to while you carry an EMI on one flat and the running costs of another.
If the new flat is still being built, its free ReraGenie page shows the first promised possession date beside the current one and every extension with the promoter's stated reason, and a Rs 299 project watch emails you when that filing changes. Find the project before you plan a move around its date.
Methodology and sources
- Income-tax Act, 2025, in force from 1 April 2026: section 21 (annual value, the nil value for up to two houses, the vacancy rule, municipal taxes actually paid) and section 22 (the 30 percent deduction, and interest with the Rs 2 lakh aggregate ceiling for self-occupied houses completed within five years), which replaced sections 23 and 24 of the 1961 Act; section 202, the new regime, formerly section 115BAC.
- Finance Act 2025: the self-occupied condition widened to any reason from 1 April 2025, announced in the Union Budget speech of 1 February 2025. Finance Act 2026: prior-period interest brought expressly within the Rs 2 lakh ceiling in section 22(2), from 1 April 2026.
- House property losses: set-off of up to Rs 2 lakh a year against other income and eight years of carry-forward under the old regime; no set-off against other heads under the new regime.
- Maharashtra: the government directive of 1 August 2001 under section 79A of the Maharashtra Co-operative Societies Act, 1960 on non-occupancy charges; section 55 of the Maharashtra Rent Control Act, 1999 on leave and licence.
- Market data: ANAROCK rental yields for Q1 2024, as reported by Business Standard in April 2024; ANAROCK Thane prices, July 2025.
- Illustrative arithmetic: ReraGenie, on an assumed rent of Rs 30,000 a month, Rs 12,000 of property tax, a 30 percent marginal rate ignoring cess and surcharge, and a Rs 70 lakh loan at 8 percent over 20 years.
This article is educational and not tax advice. Confirm the figures for your own case with a chartered accountant.
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