Calculation of Annual Value Under Income from House Property
What is Annual Value of House Property?
It means the annual rent an owner receives from his property which he rented.
How to Calculate Annual Value of House Property?
For Calculating annual value, we take into consideration 4 factors:
- Municipal Value: It is the value determined by the municipal authorities for levying municipal taxes on house property.
- Fair Rent Value: It is the rent which a similar property can fetch in the same or similar locality, if it is let out for a year.
- Standard Rent: It is the Rent determined under Rent control Act.
- Actual Rent Received or Receivable: It is the rent for which the property is let out for a year.
|Computation of Gross Annual Value|
|Less: Unrealized Rent if any||(-)|
|Gross Annual Value||XXX|
|Less: Municipal Taxes (only if paid by the owner)||(-)|
|Net Annual Value||XXX|
|Less: 30% Standard Deductions u/s 24||(-)|
|Less: Interest on borrowed capital||(-)|
|Income From House Property||XXX|
CASE 1: Where the property is let out throughout the previous year [Section 23(1)(a)/(b)]
With reference to section 23(1)(a)
Let’s understand this with a small example:
–Here, Fair Rent Value is Higher. Therefore, Rs. 1,50,000 is the expected Rent.
Standard Rent= Rs. 8,000 per month i.e., Rs. 96,000 annually.
Here, Expected Rent will be Rs. 96,000 as the value cannot exceed the standard rent as per law.
-Taking another case for standard rent = Rs. 1,80,000
Now, whatever is the lower value will be taken into account.
Comparing Higher value, which was Rs. 1,50,000 with standard rent, which is Rs.1,80,000. Now the lower value among the two will be considered i.e., Rs.1,50,000.
Therefore, Rs. 1,50,000 will be the expected value.
With reference to section 23(1)(b)
If Actual Rent Received or Receivable (ARRR) is more than the Expected rent, then annual value will be ARRR
Case 2 Where let out property is vacant for part of year [Section 23(1)(c)]
- It is a special provision due to vacancy. Here Actual Rent will be less than the expected rent.
- Therefor the actual rent received or receivable will be the Gross Annual Value of the property.
Case 3 In case of self-occupied property [Section 23(2)]
- Where the property is self-occupied by the owner throughout the previous year, its Annual Value will be nil.
- The benefit of “nil” annual value is available only up to two self-occupied properties.
- No deduction for municipal taxes is allowed in this case.
Case 4: Where House Property is let out for part of year and self-occupied for other part of year [Section 23(3)]
- In this case, till the time property is self-occupied will be irrelevant as its annual value will be nil and no deductions will be allowed.
- Here the expected rent shall be compared with the actual rent for the let-out period, and whichever is higher will be taken as GAV.
Let’s understand this with an example:
-Mr. Ram has a property in Delhi and its Municipal Value is Rs. 1,00,000 and Fair rent is Rs.1,20,000. It was self-occupied from 1.04.2020 to 1.07.2020. And w.e.f. 1.08.2020 it was let out for Rs.9,000 per month. Compute annual value.
Expected Rent (Higher of MV and FR) = Rs. 1,20,000
Actual Rent (Rs. 9,000*8) = Rs. 72,000
Therefore, Gross Annual Value will be Higher of the two = Rs.1,20,000
Case 5: In case of deemed to be let out property [Section 23(4)]
- If an owner owns more than two properties for self-occupation then the income from any two properties shall be computed and their annual value will be nil.
- In this case, for properties other than the self-occupied properties, expected rent will be taken as GAV.
- Municipal Taxes actually paid by the owner during previous year can be claimed for such properties.
Case 6 In case of House Property held as Stock in Trade [Section 23(5)]
- In this case the annual value of the property or part of property shall be nil
- The benefit would be available for the period up to 2 years from the end of financial year when certificate of completion of construction of property is obtained.
Case 7 In case of house property, a portion let out and a portion self-occupied.
- Income from any portion or part of a property which is let out shall be computed separately under “let out property” and other portion which is self-occupied shall be computed under “self-occupied property” category.
- There is no need to treat the whole property as single.
Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in what so ever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.