What is Annual Value?
Income from house property is taxable on the basis of annual value. Even if the property is not let out, notional rent receivable is taxable as its annual value. As per Sec. 23(1)(a) the annual value of any property shall be the sum for which the property might reasonably be expected to be let out from year-to-year. In determining the annual value there are four factors which are normally taken into consideration. These are: i) Actual rent received or receivable, ii) Municipal value, iii) Fair rent of the property, iv) Standard rent.
Computation of annual value of a property [Sec. 23(1)]
As per the Act the annual value is the value after deduction of Municipal taxes, if any, paid by the owner. But for the sake of convenience, the annual value may be determined in the following steps:
Step I: Determine the gross annual value.
Step II: From the gross annual value compared 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 the Income-tax Act is the annual.
Example:- Mrs. X has let out one house property @ Rs. 62,000 p.m., Municipal Valuation Rs. 72,000 p.m., Fair Rent Rs. 90,000 p.m., Standard rent Rs. 1,00,000 p.m., Municipal Tax paid Rs. 40,000. Compute Net Annual Value.
Solution:- Computation of Income under the head House Property