Tax Query: How You Acquire Your House Is Irrelevant For Taxation Under This Rule

I understand that if an individual owns an inherited house and two houses purchased by him, then he need not show any rental income in ITR at the market rate in his ITR1. But if an individual owns a house by inheritance & three houses he owns through purchase, then he needs to show one house rental income at market rate in ITR, though the house is not let out on rental. None of the house is let out on rent. Is my understanding correct?

Where you get your house from is irrelevant for taxation of income under the head “Income from House Property”. What is relevant is how many of your owned houses are self-occupied. If more than two of your houses are self-occupied, whether bought yourself or inherited, you have to include notional rent in your income for those houses, except for two houses of your choice.

My daughter got married in 2024 and lives abroad with her husband. She does not wish to continue as a coparcener or member of my HUF. It has a nominal income that she has no interest in, and it may complicate her tax liability in the country of her residence. Can she opt out of my HUF? If so, what would be the procedure? At present, she is mentioned as a coparcener in the HUF bank account and the PAN application.

Yes, your daughter can renounce her rights in the assets of the HUF by giving notice to that effect to the HUF, but in my opinion, she will continue to remain a coparcener of the HUF as long as the HUF exists. Since there is not much income in the HUF, why don’t you dissolve the HUF through full partition to avoid complications?

I sold a commercial property in November 2025. As per my understanding of the law, I have to either open an account under the Capital Gains Account or purchase a new residential property before filing ITR by July 31, 2026. I have invested the full sale proceeds of the commercial property in a residential property on April 24, 2026, but agreement execution and registration are not yet done. Can claim exemption from long-term capital gains?

In order to claim a deduction under Section 54F from long-term capital gains arising from the sale of a long-term capital asset other than a residential house, you have to invest the net sale proceeds in a residential house. The investment has to be made within a period of two years from the date of sale of the asset or within one year prior to the date of sale of such long-term asset. The exemption can also be claimed for investing in an under-construction property within three years. The requirement is only to make an investment of the requisite amount, and there is no requirement to execute the agreement or register the same. So, since you have already invested the money, you should be able to claim the benefit of exemption under Section 54F.

FAQs

1. Is notional rent applicable to inherited houses?

The mode of acquisition does not matter. If more than two houses are treated as self-occupied, notional rent must be offered on the additional properties.

2. Can a married daughter withdraw from an HUF?

She may renounce her rights in the HUF assets by giving notice, but may continue to remain a coparcener while the HUF exists. A full partition may avoid future complications.

3. Can Section 54F exemption be claimed before property registration?

Yes. The exemption may be claimed if the required amount has been invested within the prescribed period, even if the agreement and registration are pending.