What is deemed let out property?

Think of a deemed let out property as a house you are not actually leasing to anyone, but it is treated as rented for income-tax purposes. When you own more than two properties, you typically get to designate two of them as self-occupied. The remaining ones fall into the deemed let-out category. 

The tricky part? Your tax bill gets calculated on the potential rental income the property could generate, regardless of whether it is empty or bringing in zero actual rent. Below, I have shared more about the deemed let-out property.

When Does a Property Become Deemed Let Out?

Imagine you are holding onto 3 properties, but none of them is currently generating rental income.

You don't have to have a tenant living in House 3. The tax calculation is based on what rent the property could realistically earn, not on actual rent payments.

It is different from a property that's actually rented out, where a tenant is living there, and you are receiving or entitled to receive real rent money.

How is Deemed Let-Out Property Taxed?

When you are dealing with a deemed let-out property, here is basically how the calculation works out:

1. Start by figuring out what the property could reasonably earn in annual rent.

2. Subtract any municipal taxes you have actually paid out.

3. Apply a 30% standard deduction from the Net Annual Value.

4. Finally, you can claim the home-loan interest that qualifies under the current tax regulations.

So here is the thing. Even if your second house is just sitting empty and not bringing in any cash, it can still have taxable income. Why? Because the tax system looks at what that property could be earning in rent, not just what it is actually earning. Basically, they are taxing you on the potential income, not the real income. I hope you understand what is deemed let out property.

Buying a home! – Almost everyone has this one goal in their mind and they save to achieve this goal one day. However, owning a house comes with some responsibilities. Paying property tax every year is one of them. For this, you need to know whether your property is a let out property, self-occupied property, or deemed let out property.

Self-occupied property is a property where you or your family stays and the question of getting rental income out of this property doesn’t arise.

Let Out property is a property that you’ve given out on rent. This is why the rental income is considered as your income from house property in this case.

If you own more than two properties, according to the law, you can treat only 2 (before the Budget 2019, it was only 1 property) as self-occupied while the 3rd property (no matter whether let out or not) will be deemed to be let out. Now you understand the deemed let out property meaning.

The annual value of such properties is determined under the Income Tax Act, 1961 Section 23(1)(a) on which tax will be levied. The “annual value" is the property’s inherent capacity to earn income.

1) Actual rent receivable or received.

2) Municipal value of the property (Municipal authorities determine this value to levy municipal taxes).

3) Fair rent (that is equal to rent that a similar house receives in the similar or same area if rented out for 12 months)

4) Standard rent (as fixed under the Rent Control Act)

This is all on self-occupied, let out, and deemed let out house property.

Read in detail:

I hope now you understand the difference between self-occupied, let out, and deemed let out property.