Two homes tax-free, the rest deemed let out
The rule people remember, one self-occupied home, is out of date. Since the Finance Act 2019, an individual can treat up to two house properties as self-occupied with a nil annual value, so there is no tax on either of them. It is only from the third property onwards that the deemed-rent rule bites.
When a property is neither self-occupied within that limit nor actually let out, it is deemed to be let out under Section 23 and taxed on its notional annual value, the rent it could reasonably be expected to fetch, even if it is standing empty. So an NRI who owns three Indian flats and rents none of them is still taxed on a notional rent for the third, while the first two are nil. Choosing which two to designate as self-occupied, usually the higher-value ones, is a small optimisation a CA does each year.
The 2025 change that helps NRIs abroad
There used to be a doubt about whether an NRI living abroad could even claim a home as self-occupied, since the old wording tied the nil value to not occupying the house because of employment or business at another place. Most NRIs fit that, but the wording was awkward.
The Finance Act 2025 simplified it, reported to apply from the 2025-26 assessment year: a home now counts as self-occupied at nil value where the owner actually occupies it or cannot occupy it for any reason, and the old employment-or-business restriction is gone. The two-home cap continues. For an NRI who keeps Indian homes empty while living abroad, this removes the old ambiguity, two of them are cleanly nil, and only the third onwards is taxed on notional rent.
The deemed rent, the deduction, and the regime trap
Where a property is deemed let out, the tax is not on the whole notional rent. You get the same 30% standard deduction under Section 24(a) on the deemed annual value, and you can deduct the home-loan interest on that property, without the cap that applies to a self-occupied home, so a loan-funded third property may show little or even a loss.
There is a regime point to watch. Under the default new tax regime, the home-loan interest deduction on a self-occupied nil-value home is not allowed, and a house-property loss cannot be set off against your other income. Since many NRIs fall under the new regime, this changes the maths on a loan-funded home. A practising CA designates the best two homes as self-occupied, computes the deemed rent on the rest after the 30% deduction and interest, and picks the regime that leaves you better off.