What is Deemed Let Out Property? Tax Rules & Example

The provisions of the deemed let-out property are dealt with under Section 23(4) of the Income Tax Act. When the assessee has more than two vacant properties, he can use the benefit of self-occupation only to any two properties of his choice. The remaining properties are treated as let-out for taxation purposes, and such properties are called as deemed let-out properties.

What is Deemed Let Out Property?

The concept of deemed let-out property exists in the tax laws of many nations, including India. An assessee often holds many properties, some of which could be self-occupied, some let out on rent, and some may remain vacant. Section 23 of the Income Tax Act, 1961, provides an option to the assessee to choose up to two properties not actually let out to be treated as self-occupied properties. 

Other than that, all the properties, irrespective of whether rented out or vacant, should be treated as let-out property for tax purposes.

When does a Property become Deemed Let Out?

If the following conditions are satisfied, the property is deemed let-out property for tax purposes.

1. When the assessee has more than two properties.
2. Such properties remain vacant.
3. If an assessee owns more than two properties, any additional properties will be treated as deemed let-out, even if they remain vacant for part of the year.
4. Even if you have let out a house without rent, it is treated as a deemed let-out property.

When does a Property does not become “Deemed Let Out”?

In the following cases, even if the property is left vacant, it is not considered a deemed let-out property:

1. For real estate taxpayers who hold property as stock in trade, the annual value of vacant property may be taken as nil for two financial years from the end of the financial year in which the certificate of completion is obtained.
2. If the total number of properties is 2, the second vacant property can be claimed as a self-occupied property, not deemed to be let out.
3. The second property can be vacant for any reason, not only employment.

How is Income Calculated for a Deemed Let Out Property?

• The income from house property is calculated in the same manner as income from the let-out property. 
• The market value of rent can be taken as the gross annual value. 
• Also, deductions such as municipal taxes, the standard deduction, and home loan interest can be claimed against income for a deemed let-out property. 

The following table illustrates how to calculate house property income in the case of a deemed let-out property. 

Mr A has three properties in total, and he is occupying one property for his residential purposes. The other two are left vacant. In this case, the third property will be deemed a let-out property. He has paid municipal taxes of Rs 10,000 and has Rs 3 lakhs in interest due on his home loan during the year. The tax calculation in the case of a deemed let-out property is given below

*-The entire interest due on the home loan can be availed as a deduction since this vacant property is treated as a let-out property for tax purposes.

Deemed Let Out Property in Old vs New tax regime

There is little difference between the old and new regimes regarding the taxation of deemed let-out property. Municipal taxes, the standard deduction, and home loan interest are available without any ceiling limit under both the old and new regimes.

Where to report income from the Deemed Let out Property in the ITR?

• Income from house property can be reported in all the ITR forms.
• While entering the income, check the box whether it is self-occupied, let out, or deemed to be let out property in the utility.
• This will be reflected in Schedule HP of ITR

Common Mistakes People Make with Deemed Let Out Property

The most common mistake while filing ITR is that missing to disclose income altogether. Since they do not really ‘earn’ income from these vacant properties, it might be presumed that tax implications don't arise. However, under the deemed income concept, they still need to include the market value of rent in the annual value and thereby report this income in the appropriate ITR form.