Annual Value - (Section 23) - Income Tax - Ready Reckoner - Income Tax

SEC 23 : ANNUAL VALUE : Annual Value shall be the sum for any 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 property. It is something like notional rent which could have been derived, had the property been let. In determining the annual value there are four factors which are normally taken into consideration - Actual rent received or receivable Municipal Value Fair rent of the property Standard rent Following are the steps for computing annual value :- Step 1 : Determine the Gross Annual Value (GAV) Step 2 : Deduct municipal tax from GAV calculated above (GAV - Municipal Taxes = Net Annual Value) As per the Income tax the above net annual value(NAV) shall be the Annual Value. Section 23(1)(a) Higher of following shall be the GAV: Expected Rent = Higher of Municipal valuation and fair rent. Actual Rent Received / Receivable Section 23(1)(b) i.e. Let out property whether with or without vacancy: If ARRR (Actual Rent Received / Receivable) excluding UR (Unrealized Rent) GAV u/s 23(1)(a) Then GAV = Such ARRR u/s 23(1)(b) , otherwise, GAV = ALV u/s 23(1)(a) Section 23(1)(c) i.e. Let out with vacancy If the property is let BUT remains vacant for whole period of the PY or part of the PY and Owing to (i.e. by reason of) such vacancy ARRR excluding UR ALV u/s 23(1)(a) Then GAV = Such ARRR u/s 23(1)(c) . Otherwise, GAV = ALV u/s 23(1)(a) minus loss due to vacancy where reason of such lesser amount of ARRR is other than vacancy also. Deduction for Municipal Taxes is subject to following two conditions: It should be borne (paid) by the assessee and It should be actually paid during the previous year. As per Explanation to Sec. 23(1) but subject to rules For the purpose of Sec. 23(1)(b) 23(1)(c) Amount of Actual Rent Received / Receivable by the owner (ARRR) shall not include the amount of rent which the owner cannot realise i.e. Unrealised Rent Rule 4: Conditions for Unrealised Rent The tenant must be bonafide. The tenant should have vacated the property or reasonable steps should have been taken to evict him. The tenant should not be in occupation of any other property of the assessee. Reasonable rent should have been taken to realise the rent or the AO must be convinced that any such step would be of no use. Section 23(2) :- Where the house is held by the owner for his own residence or cannot be occupied due to his employment and has to reside at some other place, then annual value of such house shall be taken to be NIL Section 23(3) :- Section 23(2) will not apply if the house or part of the house is actually let during the whole or any part of the previous year or any other benefit therefrom is derived by the owner. Section 23(4) :- In case property referred in sec 23(2) consist of more than TWO HOUSES [FA 2019, w.e.f. 1-4-2020] the provision shall apply in respect of TWO HOUSES [FA 2019 w.e.f. 1-4-2020] at the option of the assessee and the annual value shall be determined as per sec 23(1). Section 23(5) - Inserted by FA, 2017, w.e.f. 1.4.2018:- Where the property consisting of any building or land appurtenant thereto is held as stock-in-trade and the property or any part of the property is not let during the whole or any part of the previous year, the annual value of such property or part of the property, for the period up to one year from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority, shall be taken to be nil.