The self-occupied property will not attract any income tax. However, if you own more then one house, then these houses will be deemed to be given on rent.
So, the point is that, whether you give it on rent or not, you will have to calculate rental income on it and pay income tax accordingly. The calculations for rental income is based on certain valuations prescribed by the income tax rules.
Now, the simple logic is to give the second house on rent, simply because you would have to show rent on the same, whether the same is leased out or not.
It's important to note that the law also applies to inherited property in India. This means that if you own one property and have inherited the other, deemed rental income shall be calculated on the second property.
Rental income received is always added to the total income to arrive at the gross income. So, if you own a second house do not forget to calculate the rental income on the same.
Can NRIs earn rental income?
Non resident Indians (NRI) are allowed to buy property in India and then rent it out. The rental income so earned is taxed in India. The rental income will form part of the total income and taxed according to the tax slabs currently prevailing. So, if your other income is Rs 2 lakhs and your rental income for leasing out your property is Rs 2 lakhs, you would have to file income tax returns for Rs 4 lakhs. The rent proceeds will have to be credited to the NRO account of the NRI.