by 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:
- Actual Rent Received or Receivable
- Municipal Value
- Fair Rent of the Property
- 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.
