Do you own 3 houses? Get ready to pay tax even if you didn't rent out any.

So, you own more than two properties and one of them is lying vacant. You might be wondering, "Do I need to pay tax on a vacant property?" The answer is yes, and here's why. The Income-tax Act,1961 states that up to two house properties of a taxpayer can be classified as self-occupied house property. On these self-occupied properties, the concept of deemed rent will not apply as per the income tax laws.

But what about the additional properties? Any house property(s) over these self-occupied properties will be considered as 'deemed to be let out property'. This means that even though the house is vacant and earning no income, it's assumed that the house has been put on rent. This is the deemed rent concept.

Now, how do you calculate the tax payable on this deemed rent? You need to calculate the Gross Annual Value (GAV) of the property. This GAV is the reasonable expected rent that can be earned from a vacant property. The calculation of GAV is a two-step process. First, calculate the higher of the municipal value or fair rent. Second, from the lower of these two compare it with the standard rent (if the property is covered by Rent Control Act). The reasonable expected rent value arrived at in the second step will be the GAV.

Remember, this is because for deemed to be let-out houses there is no actual rental income. If it had been a let-out house, GAV would be higher of reasonable expected rent and actual rent.

So, next time you're filing your taxes, don't forget to consider your vacant properties!