Section 23 – Income from house property is taxable on the basis of annual value. Even if the property is not let out during the year or let out only for a part of the year, notional rent receivable is taxable as its annual value.
Annual value of the house property is based on the following factors:-
A) Actual rent received or receivable – This is the actual rent received/receivable by the owner of the house property on letting the house property.
B) Municipal value – This is the value as determined by the Municipal authorities for levying Municipal taxes on house property. Municipal authorities normally charge house tax/Municipal taxes on the basis of annual letting value of such house property.
C) Fair rent – Fair rent is the rent which a similar property can fetch in the same or similar locality, if it is let out for a year.
D) Standard rent – The standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control Act, the owner cannot be expected to get a rent higher than the standard rent fixed under the Rent Control Act.
E) Expected rent – Expected rent is the higher value among municipal value and fair rent subject to a maximum of Standard rent.
Computation of Gross Annual Value of House Property
As per section 23(1), the annual value of such house property shall be deemed to be
a) the sum for which the property might reasonably be expected to let out from year-to- year, i.e., the expected rent; or
b) where the property or any part of the property is let out and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a) , the amount so received or receivable, i.e., the actual rent; or
c) where the property or any part of the property is let out and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable, i.e., the actual rent, if any:
There can be three cases in regards to let out property i.e.
Case 1 – When the house property is let out for the complete previous year (throughout the previous year)
Case 2 – When the house property is let out and was vacant for whole or part of the previous year
Case 3 – When the house property is let out for part of the year and part of the year occupied for own residence
Case 1 – When the house property is let out for the complete previous year (throughout the previous year)
| Example – 1 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 1,00,000 * 12) | 12,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 12,00,000 |
| Gross Annual Value (higher of e or f ) | 12,00,000 |
| Example – 2 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 1,20,000 * 12) | 14,40,000 |
| Actual Rent (Rs 1,00,000 * 12) | 12,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 14,40,000 |
| e) Expected Rent (Lower of c or d) | 10,80,000 |
| f) Actual Rent | 12,00,000 |
| Gross Annual Value (higher of e or f ) | 12,00,000 |
| Example – 3 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 50,000 * 12) | 6,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 6,00,000 |
| Gross Annual Value (higher of e or f ) | 9,60,000 |
Case 2 – When the house property is let out and was vacant for whole or part of the previous year
| Example – 1 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 1,00,000 * 10 and vacant for 2 month) | 10,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 10,00,000 |
| Gross Annual Value – Section 23(1)(b) | 10,00,000 |
Note – Actual rent received is Rs 1,00,000 per moth whereas expected rent is Rs 80,000 per month so section 23(1)(b) is applicable.
| Example – 2 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 1,00,000 * 8 and vacant for 4 month) | 8,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 8,00,000 |
| Gross Annual Value – Section 23(1)(c) | 8,00,000 |
Note – Actual rent received is Rs 1,00,000 per moth whereas expected rent is Rs 80,000 per month so section 23(1)(c) is applicable. Owing to such vacancy, the actual rent received or receivable is less than the value determined under clause Section 23(1)(a).
| Example – 3 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 50,000 * 8 and vacant for 4 month ) | 4,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 4,00,000 |
| Gross Annual Value – Section 23(1)(a) | 9,60,000 |
Note – Actual rent received is Rs 50,000 per moth whereas expected rent is Rs 80,000 per month so section 23(1)(a) is applicable and the loss is not due to vacancy.
Case 3 – When the house property is let out for part of the year and part of the year occupied for own residence
In this case the period of occupation of property for own residence shall be irrelevant and annual value of such house shall be determined as if it is let out for part of the year. The gross annual value shall be higher of expected rent or rent received/receivable for the let out period. Section 23(1)(c) shall not apply in this case.
| Example – 1 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 1,00,000 * 8 and SOP for 4 months) | 8,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 8,00,000 |
| Gross Annual Value (higher of e or f ) | 9,60,000 |
| Example – 2 | |
| Fair Rent (Rs 90,000 * 12) | 10,80,000 |
| Municipal Value (Rs 72,000 *12) | 8,64,000 |
| Standard Rent (Rs 80,000 * 12) | 9,60,000 |
| Actual Rent (Rs 1,00,000 * 10 and SOP for 2 month) | 10,00,000 |
| Solutions | |
| a) Fair Rent | 10,80,000 |
| b) Municipal Value | 8,64,000 |
| c) Higher of a or b | 10,80,000 |
| d) Standard Rent | 9,60,000 |
| e) Expected Rent (Lower of c or d) | 9,60,000 |
| f) Actual Rent | 10,00,000 |
| Gross Annual Value (higher of e or f ) | 10,00,000 |
