Year: 2020

There is never going to be a single product that makes everyone happy. One group of people would applaud a design while others would have a different opinion. Among those some would criticize the design of the product and there would be others who wouldn’t be bothered at all. This shows that there is tremendous opportunity for a product designer as there is always something to work on. The target audience is always going to be different and most of the successful designs come from regularly taking feedback from the user and making improvisations to the design. Since the products are sold by a business to the users, multiple strategies are formulated to push sales and get the product to the market. However the success of a product design would depend on a few factors which are briefly described below.

1. Cost

One major factor that affects product design is the cost of production including material costs and labour costs. These in turn affect the pricing strategy, which needs to be in line with what the customer is prepared to pay for it.

2. Ergonomics

The product needs to be user friendly and afford convenience in its function. Using ergonomic measurements, minor or major changes may need to be made to product design to meet essential requirements.

3. Materials

An important consideration in product design is whether the required materials are available easily. In addition to that one has to be updated on new developments in materials and technology.

4. Customer Requirements

One of the biggest influence on the design of the product is the customer and their requirements. It is vital to capture customer feedback on any prototype as well as during the planning and conceptual stages. Even a technologically advanced and exciting feature may need to be removed if it causes dislike or negative feelings in an end user.

5. Aesthetics

The product needs to appear stylish or of a certain shape. This form may end up determining the technology that it built into the product. This may in turn also affect the manufacturing process that needs to be followed.

6. Fashion

The current fashion and trends would affect a certain product’s design. Customers would want the most updated options and this needs to be considered during product design.

7. Culture

If a product is for a certain market with its own individual culture, this needs to be kept in mind during design. A product which is acceptable in one culture would end up being offensive or not desirable in another one.

8. Environment

Another consideration to product design is its impact on the environment. The average customer these days may be more discerning and concerned about the environment than before. Things to consider here may include whether the materials used are recyclable, how the product will be disposed of at the end of its life or how the packaging can be disposed of.

Multiple products are brought into the market daily but there is still scope for improvement in every aspect as trends keep changing. People always want newer versions of everything. Product design is a field where one would always have opportunity to experiment and innovate.

Types of Consumer Products

A consumer product is a product bought by final consumers for personal consumption. But not every consumer product is the same. There are four different types of consumer products. Marketers usually classify consumer products into these 4 types of consumer products:

• Convenience products
• Shopping products
• Speciality products
• Unsought products

These 4 types of consumer products all have different characteristics and involve a different consumer purchasing behavior. Thus, the types of consumer products differ in the way consumers buy them and, for that reason, in the way they should be marketed.

1. Convenience Products

Among the four types of consumer products, the convenience product is bought most frequently. A convenience product is a consumer product or service that customers normally buy frequently, immediately and without great comparison or buying effort. Examples include articles such as laundry detergents, fast food, sugar and magazines. As you can see, convenience products are those types of consumer products that are usually low-priced and placed in many locations to make them readily available when consumers need or want them.

2. Shopping Products

The second one of the 4 types of consumer products is the shopping product. Shopping products are a consumer product that the customer usually compares on attributes such as quality, price and style in the process of selecting and purchasing. Thus, a difference between the two types of consumer products presented so far is that the shopping product is usually less frequently purchased and more carefully compared. Therefore, consumers spend much more time and effort in gathering information and comparing alternatives. Types of consumer products that fall within the category of shopping products are: furniture, clothing, used cars, airline services etc. As a matter of fact marketers usually distribute these types of consumer products through fewer outlets, but provide deeper sales support in order to help customers in the comparison effort.

3. Speciality Products

Number three of the types of consumer products is the speciality product. Speciality products are consumer products and services with unique characteristics or brand identification for which a significant group of consumers is willing to make a special purchase effort. As you can see, the types of consumer products involve different levels of effort in the purchasing process: the speciality product requires a special purchase effort, but applies only to certain consumers.

Examples include specific cars, professional and high-prices photographic equipment, designer clothes etc. A perfect example for these types of consumer products is a Lamborghini. In order to buy one, a certain group of buyers would make a special effort, for instance by travelling great distances to buy one. However, speciality products are usually less compared against each other. Rather, the effort must be understood in terms of other factors: Buyers invest for example the time needed to reach dealers that carry the wanted products. To illustrate this, look at the Lamborghini example: the one who wants one is immediately convinced of the choice for a Lamborghini and would not compare it that much against 10 other brands.

4. Unsought products

The 4 types of consumer products also include unsought products. Unsought products are those consumer products that a consumer either does not know about or knows about but does not consider buying under normal conditions. Thus, these types of consumer products consumers do not think about normally, at least not until they need them. Most new innovations are unsought until consumers become aware of them. Other examples of these types of consumer products are life insurance, pre-planned funeral services etc. As a consequence of their nature, unsought products require much more advertising, selling and marketing efforts than other types of consumer products.

• Foreign allowances

Foreign allowances or perquisites paid or allowed by Government to its employees (an Indian citizen) posted outside India. Fully exempted.

• Allowances to Judges of High Court/Supreme Court 

Fully exempted subject to certain conditions

• Allowances paid by the UNO to its employees

Fully exempted

• Salary and allowances received by a teacher /professor from SAARC member state

 Fully exempted (Subject to certain conditions).

• Compensatory allowance received by a Judge

“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages.

“Perquisite” is defined in the section 17(2) of the Income tax Act as including:

(i) Value of rent-free/concessional rent accommodation provided by the employer.

(ii) Any sum paid by employer in respect of an obligation which was actually payable by the assessee.

(iii) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

(iv) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

(v) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

(vi) The value of any other fringe benefit or amenity as may be prescribed.

Fully and Partially Taxable Perquisites

The following perquisites are fully taxable in the hands of all employees receiving such perquisites:

Rent free accommodation:

The rent free accommodation provided to employees by their employer is taxable. Since the employees are provided rent free accommodation, the amount of income accruing to them cannot be determined by them. Accordingly, there is prescribed manner for calculating income chargeable to tax as perquisite. The manner of calculating income chargeable to tax as perquisite for rent free accommodation is as follows:

Category of Employees	Income
	Unfurnished Accommodation	Furnished Accomodation
1) Provided to a Judge of High Court, Supreme Court2) Provided to an Officer of Parliament	In case of Rent free Official Residence: Nil	In case of Rent Free Official Residence: Nil
Provided to Central/ State Government employees	(a) License fees determined by the Central/ State Government	(a) Same as Unfurnished Accommodation(b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Provided to any other employee
1) Where the accommodation is owned by the employer	(i) 15% of salary in cities having population exceeding 25,00,000(ii) 10% of salary in cities having population between 10,00,000 and 25,00,000(iii) 7.5% of salary in other areas	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
2) Where the accommodation is taken on rent by the employer	Lower of the following:(i) Rent Payable Or(ii) 15% of salary	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Accommodation provided in a hotel	Not Applicable since Hotel is presumed to be furnished.	Lower of the following:(i) 24% of salary Or(ii) Rent (Room Fare/ Charges) Payable

Concession in rent:

Some employers provide the employees with accommodation at rates lower than normal market rates. This reduction in rates is known as concession in rent.

The income chargeable to tax as perquisite as concession shall be determined as:

(i) Amount of Income chargeable to tax as above

(ii) Less: Amount of rent payable/ paid to the employer. 

Payment by the employer in respect of an obligation of employee:

In this case, the amount is liable to be paid by the employee and the employer pays the same.

Example: Self-Assessment Tax of the employee is paid by the Employer.

Note: If the employer pays taxes on behalf of employees on non-monetary perquisites provided to them, then such taxes are exempt in the hands of the employee. 

Sweat Equity allotted or transferred to the assessee:

The Companies in appreciation of its employees or with an aim to achieve a particular objective grants an option to the employees to subscribe equity shares at nil value or at concessional rates than the current market prices to its workforce. If the employee exercises such option and subscribes to such shares at nil or concessional rates, then it forms part of perquisites. 

Valuation of Sweat Equity shall be as follows:

Note: If the shares have been received at a concessional rate then the amount paid to the employer company shall be deducted from the value of perquisite calculated as above. 

Amount of any Contribution to an approved superannuation fund:

Employer’s contribution to superannuation fund is a perquisite.

The tax treatment for approved superannuation fund is as follows:

1. Employer’s Contribution to Superannuation Fund: Upto Rs. 1,50,000/- exempt in the hands of the employee.
2. Employee’s Contribution to Superannuation Fund is allowed as deduction under Chapter VIA. (Subject to the limits specified)
3. Interest accumulated on such fund is exempt from tax.
4. Payment of balance of fund:
5. To the employee on retirement
6. To the employee on disablement
7. To the legal heirs on death of the employee 

Transport Facility and Valuation of Free or Concessional Tickets:

 The Value of any benefit or amenity resulting from the provision by an employer:

(i) Who is engaged in the carriage of passengers or goods,

(ii) To any employee or to any member of his household for personal or private journey free of cost or at concessional fare,

(iii) In any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods

Shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity.

However, there would be no such perquisite to the employees of an airline or the railways. 

Valuation of benefit of provision of domestic servants

If the employee or any member of his household are provided with domestic servants such as sweeper, gardener, watchman or personal assistant then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Utility such as gas, electricity or water supplied by employer

If the employer pays to the utility provider on behalf of the employee or if the employer himself provides such utilities then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Free or concessional educational facilities

If the employer provides free or concessional educational facilities from the educational institutions maintained and owned by the employer or if free educational facilities are allowed in any other educational institution then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the educational institution is maintained and owned by the employer and the employer provides free or concessional education facilities to the employee himself or his children and the benefits so received by the employee does not exceed Rs. 1,000/- per month then such amount shall not be taxable in the hands of the employee as perquisite. 

Interest-free or concessional loan

The value of the benefit to the employee as a result of interest-free loan or concessional loan for any purpose provided to the employee or any member of his household is a taxable perquisite.

However, this perquisite will be not be chargeable to tax in any of the following cases:

1. If such loan is provided for the purpose of treatment of diseases such as cancer, tuberculosis, etc. However, out of the amount of loan provided, if the employee receives reimbursement from any medical insurance scheme, then such amount shall not be exempt.
2. Amount of loans made to an employee does not exceed Rs. 20,000/-. 

  Free or concessional food and non-alcoholic beverages

If the employer provides free or concessional food and/ or beverages such as tea, coffee etc., then the benefits so received by the employee are taxable as perquisites in the hands of the employee. However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. Free food and beverages such as tea, coffee etc. provided by the employer to an employee during working hours at office or business premises less than Rs. 50/- per meal.
2. Vouchers provided having value less than Rs. 50/- per meal
3. Tea or Snacks provided during working hours
4. Free food and beverages such as tea, coffee etc. provided during working hours provided in a remote area or an offshore installation. 

 Gifts or Vouchers

Gift or vouchers received by employees or by member of his household on ceremonies or occasions are taxable perquisites in the hands of the employees. However, if the value of such gifts in totality do not exceed Rs. 5,000/- then such gifts are not taxable as perquisite in the hands of the employees. 

Reimbursement of credit card expenses

If the employer reimburses expenses incurred by the employee or any member of his household using a Credit card then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if such expenses are made by the employee exclusively for official purposes and the employer has documented the expenses incurred using the credit card then such reimbursements are not taxable as perquisite in the hands of the employees. 

Club expenditure

If the employer pays or reimburses for the periodic subscription of a club for the employee or any member of his household then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. If the use of health club, sports and such facilities are provided uniformly to all employees by the employer.
2. Such expenditure is incurred wholly and exclusively for business purposes and if the expenditure is properly documented by the employer. 

 Use of movable assets

If movable assets such as laptops are provided by the employer to the employee then the benefits so received by the employees are not taxable in the hands of the employee. However, other movable assets such as furniture, car etc are provided by the employer to the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee.

Transfer of movable assets

If the employer transfers any movable assets such as computers and electronic items, motor cars etc. in the name of the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Fully Exempt Perquisites

The following perquisites are fully exempt from tax subject to compliance of conditions specified: 

Telephone	Telephone provided by the employer to his employee at his residence.
Transport Facility	Transport Facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate
Privilege passes and Privilege ticket	These are provided by Indian railways to its employees.
Perquisites allowed outside India by the Government	Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India
Employer’s Contribution to staff group insurance scheme	Employer takes a single insurance of all the staff and contributes towards the insurance premium.
Recreational Facilities	Subsidized lunch or dinner provided by the employer.
Amount spent on training of employees	This includes amount paid for refresher management course including expenses on boarding and lodging.
Sum payable by employer to a Approved Funds	Funds include Recognised Provident Fund, Approved Superannuation Fund or Deposit-linked insurance fund.
Medical Facilities	The following are exempt:(i) Value of medical treatment in a hospital maintained by the employer to the employee or any of his family members(ii) payment by the employer for treatment in a Government Hospital(iii) payment by the employer for treatment of prescribed diseases in any approved hospital(iv) mediclaim insurance premium paid by the employer for the employee(v) reimbursement upto Rs. 15,000/- of expenditure actually incurred by the employee for self or any of his family members.
Amount paid towards expenditure incurred outside India on medical treatment	This includes the following:(i) medical treatment of the employee or any member of the family of such employee outside India,(ii) travel and stay abroad of the employee or any member of the family of such employee for medical treatment(iii) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.Conditions:(i) The amount of exemption will be limited to the amount approved by RBI(ii) If the employee’s taxable income before deductions is more than Rs. 2,00,000/- then the expenditure on travelling of the patient and the attendant shall be fully taxable.
Conveyance Facility	Conveyance facility provided to Supreme Court and High Court Judges.
Payment of premium on personal accident insurance policies

Perquisite arising out of supply of gas, electric energy or water:

This shall be determined as the amount paid by the employer to the agency supplying the same. If the supply is from the employer’s own resources, the value of the perquisite would be the manufacturing cost per unit incurred by the employer. However, any payment received from the employee towards the above would be reduced from the amount [Rule 3(4)]

• Transport  Allowance

Any amount paid to employee for expenses incurred on commuting between residence and place of duty

Exemption: Rs. 1,600 per month (In case of blind, deaf, dumb and handicapped employees Rs.3, 200 per month) is exempted

• House Rent Allowance

Any allowance paid by employer to pay employee’s rented accommodation

Exemption: Least of following three is exempted:-

1. Actual HRA received
2. 40 % of salary ( 50% if house situated in Mumbai, Calcutta, Delhi or Madras)
3. Actual rent paid minus 10% of salary (Salary is Basic +DA or Basic as per company’s salary structure)

Note:

1. HRA is fully taxable if employee is living in his own house or if he don’t pay any rent.
2. Pan number of land lord is required if house rent exceeds Rs. 1 lakh

• Conveyance Allowance

Any allowance paid by employer to meet expenses incurred on conveyance while performing office duties

Exemption: Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Children Education Allowance

It is reimbursement for educational expenses incurred for two children

Exemption: Up to Rs. 100 per month per child up to 2 children is exempted

• Hostel Expenditure Allowance

Any allowance granted to an employee to meet the hostel expenditure of his child

Exemption: Up to Rs. 300 per month per child up to 2 children is exempted

• Uniform Allowance

In this case, according to dress code of the office, an employee can claim uniform reimbursement for formal clothes purchased for office wear. Does not necessary for workers in factory, it’s for all employees who have to follow certain dress code in office and its maintenance.

Exemption: Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Research Allowance

It is granted for encouraging the academic research and other professional pursuits.

Exemption- Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Helper/Assistant Allowance

Exemption- Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Allowance to meet travel cost and transfer

Exemption- Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Entertainment Allowance Government employees

Least of the following is exempt from tax:

a) Rs 5,000

b) 1/5th of salary (excluding any allowance, benefits or other perquisite)

c) Actual entertainment allowance received

• Daily Allowance

Daily allowance is given to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty

Exemption: Exempted to the extent of expense incurred for official purpose (Varies from company to company as per their policy)

• Tribal area allowance

Allowance is given to employees who worked in (a) Madhya Pradesh (b) Tamil Nadu (c) Uttar Pradesh (d) Karnataka (e) Tripura (f) Assam (g) West Bengal (h) Bihar (i) Orissa

Exemption- Exempted up to Up to Rs. 200 per month

• Underground Allowances

Underground allowances granted to employees working in unpleasant, unnatural climate in underground mines

Exemption: Exempted up to Up to Rs. 800 per month

• Border area allowance Remote Locality or allowance or Disturbed Area allowance or Difficult Area Allowance (Subject to certain conditions and locations)

Exemption: Amount exempt from tax varies from Rs. 200 per month to Rs. 1,300 per month

• High Altitude Allowance ( For armed forces)

It is granted to armed forces operating in high altitude areas (Subject to certain conditions and locations)

Exemption:

a) Up to Rs. 1,060 per month (for altitude of 9,000 to 15,000 feet)

b) Up to Rs. 1,600 per month (for altitude above 15,000 feet)

• Highly active field area allowance ( For armed forces)

  Subject to certain conditions and locations

  Exemption: Up to Rs. 4,200 per month

• Island Duty Allowance ( For armed forces)

 It is granted to members of armed forces in Andaman and Nicobar and Lakshadweep  group of Island (Subject to certain conditions and locations)

Exemption: Up to Rs. 3,250 per month

Allowance is amount paid to employees as a part of salary or disbursement of expenses incurred during course of their regular job duty. Salary structures are normally broke up into basic salary and allowances, out of which basic salary is fully taxable and allowances can be partially or fully taxable or may fully exempted. Allowances provided by company may differ to differ according to their policies.

Fully taxable allowances

The list of fully taxable allowances is as follows (Differs from company to company as per company allowances):-

• Dearness Allowance

This allowance is paid to employees to adjust their cost of living to cope up with inflation is fully taxable

• City compensatory allowance

Fully taxable allowance of salary generally given to employees working in big cities to compensate for the higher standard of living.

• Fixed Medical allowance

It is fixed allowance paid by company per month to employees whether they submit bills or not. It is fully taxable. But employees can claim tax benefit up to Rs.15,000 under medical reimbursement (bills and supporting documents required in this case)

• Tiffin/Lunch/Dinner/Refreshment Allowance

Any allowance paid by company for Tiffin/lunch / Dinner or refreshments is fully taxable

• Servant Allowance

When an employer pays an employee to engage services of a servant, such an allowance is taxable.

• Project Allowance

Any amount paid to employee who are involved in projects or settle expenses incurred during projects on behalf of company

• Overtime Allowance

Any amount paid for overtime is fully taxable

• Telephone allowance

Telephone allowance is fully taxable. However, telephone bill reimbursement is fully exempted.

• Holiday Allowance

This allowance is paid if employee have worked on holiday is fully taxable

• Entertainment Allowance ( Except government employees )

This allowance is payable to employees for expenses incurred for hospitality of customers or clients who meet them in connection with their office or business work. It may paid as fixed amount in salary or out of salary to employees for private sector employees. For government sector is partially exempted.

• Any Other Cash Allowance

The income chargeable under the head “Salaries” is computed after making the following deductions under Section 16:

1. Standard Deduction
2. Entertainment Allowance Deduction
3. Professional Tax

1. Standard Deduction [Sec. 16(i)/(ia)]

• Standard deduction is Rs. 40,000
• The Amount of Salary, whichever is lower

2. Entertainment Allowance [Sec. 16(ii)]

Entertainment allowance is first included in salary income under the head “Salaries” and thereafter a deduction is given on the basis enumerated in the following paragraphs:

(A). In the case of a Government employee (i.e., a Central Government or a State Government employee), the least of the following is Deductible:

1. 5,000
2. 20 % of Basic Salary
3. Amount of Entertainment Allowance granted during the previous year

In order to determine amount of entertainment allowance deductible from salary, the following points need consideration:

1. For this purpose “salary” excludes any allowance, benefit or other perquisites.
2. Amount actually expended towards entertainment (out of entertainment allowance received) is not taken into consideration.

(B). In the case of a Non-Government Employee (including employees of Statutory Corporation and Local Authority):

Entertainment Allowance is NOT deductible.

3. Professional Tax or Tax on Employment [Sec. 16(iii)]

Professional Tax or Tax on Employment, levied by a State under article 276 of the Constitution, is allowed as Deduction.

The following points should be kept in view:

1. Deduction is available only in the year in which professional tax is paid.
2. If the professional tax is paid by the employer on behalf of an employee, it is first included in the salary of the employee as a “perquisite” and then the same amount is allowed as deduction on account of “professional tax” from gross salary.
3. There is no monetary ceiling under the Income-tax Act. Under article 276 of the Constitution, a State Government cannot impose more than Rs. 2,500 per annum as professional tax. Under the Income-tax Act, whatever professional tax is paid during the previous year, is deductible.

Gross Annual Value and Net Annual Value

Gross Annual Value of a property is the value at which the property might reasonably be expected to be let from year to year. It is more like a notional rent which one could have earned in case property had been let out. Even if the property is not let out, the notional rent or deemed rent receivable is taxable.

As per section 23(1)(a) the Annual Value of any property shall be the sum for which the property might reasonably be expected to be let from year to year. It may neither be the actual rent derived nor the municipal valuation of the property. It is something like notional rent which could have been derived, had the property been let. In determining the annual value there are 4 factors which are normally taken into consideration. These are:

1. Actual Rent Received or Receivable
2. Municipal Value

• Fair Rent of the Property

1. Standard Rent

Computation of Annual Value of a Property [Section 23(1)]

As per the Income Tax Act. the Annual Value is the value after deduction of municipal taxes, if any, paid by the owner. But for sake of convenience, the annual value may be determined in the following two steps:

Step I : Determine the Gross Annual Value:

Gross Annual Value is determined as follows –

Step-1	Find out reasonable expected rent of the property
Step-2	Find out rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy
Step-3	Find out which one is higher—amount computed in Step-1 or Step-2.
Step-4	Find out loss because of vacancy
Step-5	Step-3 minus Step-4 is Gross Annual Value

Determine the Net Annual Value :

From the gross annual value computed in step I, deduct municipal tax actually paid by the owner during the previous year.

The balance shall be the net annual value which, as per Income-tax Act., is the annual value.

The annual value has to be determined for different categories of properties. These could be:

A. House property which is let throughout the previous year.

B. House property which is let and was vacant during the whole or any part of the previous year.

C. House property which is part of the year let and part of the year self-occupied.

House property which is self-occupied for residential purposes or could not actually be self occupied owing to employment at any other place.

(A) Annual Value for House Property which is Let throughout the Previous Year.

Step1: Determine Gross Annual Value

Gross Annual Value of the House Property Let for the whole year shall be higher of the following two:

(a) Expected rent;

(b) Actual rent received or receivable.

How to calculate Expected Rent:

The higher of the following two is taken to be the expected rent:

(i) Municipal Valuation;

(ii) Fair Rental value.

Basis of Charge [Section 22]:

Income from house property shall be taxable under this head if following conditions are satisfied:

a) The house property should consist of any building or land appurtenant thereto;

b) The taxpayer should be the owner of the property;

c) The house property should not be used for the purpose of business or profession carried on by the taxpayer.

Computation of income from house property:

Income from a house property shall be determined in the following manner:

Particulars	Amount
Gross Annual Value	–
Less: Municipal Taxes	–
Net Annual Value	****
Less: Standard deduction at 30% [Section 24(a)]	–
Less: Interest on borrowed capital [Section 24(b)]	–
Income from house property	****

Gross Annual value [Sec. 23(1)]

The Gross Annual Value of the house property shall be higher of following:

a) Expected rent, i.e., the sum for which the property might reasonably be expected to be let out from year to year. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to maximum of standard rent;

b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy

Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to the gross annual value.