Evolution of Annual Value Determination of Property Income: Section 23 of Income Tax Act, 1961 and Clause 21 of Income Tax Bill, 2025

Clause 21 Determination of annual value.

Income Tax Bill, 2025

Introduction

This analysis compares the provisions for determining annual value of property under the existing Income Tax Act, 1961 (Section 23) and the proposed Income Tax Bill, 2025 (Clause 21). Both provisions deal with the computation of annual value of properties for income tax purposes, but there are several notable changes in the new bill.

Structural Changes and Simplification

The new Clause 21 presents a more streamlined and simplified structure compared to the existing Section 23. While maintaining the core principles, it eliminates redundant provisions and provides clearer language for interpretation.

Key Changes and Comparative Analysis

1. Basic Definition of Annual Value

Existing Act: Section 23(1) provides three scenarios (a), (b), and (c) for determining annual value

New Bill: Clause 21(1) simplifies this into two criteria - expected rent and actual rent, choosing the higher of the two

2. Treatment of Vacant Properties

Existing Act: Deals with vacancy u/s 23(1)(c) as part of the main provision

New Bill: Creates a separate sub-section [21(2)] specifically for vacant properties, providing clearer guidance

3. Local Authority Taxes

Existing Act: Allows deduction through a proviso to Section 23(1)

New Bill: Dedicates a separate sub-section [21(3)] and expands scope to include service taxes

4. Self-Occupied Properties

Existing Act: Complex provisions u/s 23(2) and 23(3)

New Bill: Simplified under Clause 21(6) and 21(7), maintaining the two-house limit but with clearer language

5. Stock-in-Trade Properties

Existing Act: Section 23(5) allows nil value for one year

New Bill: Extends the nil value period to two years under Clause 21(5)

Practical Implications

1. Simplified Compliance: The new structure reduces complexity in determining annual value

2. Extended Benefits:

• Longer nil-value period for stock-in-trade properties
• Clearer provisions for vacant properties
• Explicit inclusion of service taxes in deductions

3. Self-Occupied Properties:

• Maintains the two-house benefit
• Clearer restrictions on letting out and other benefits

Conclusion

The proposed Clause 21 represents a significant improvement in terms of clarity and structure while maintaining the essential principles of the existing Section 23. The changes appear aimed at reducing litigation and improving ease of compliance.

 

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Full Text:

Clause 21 Determination of annual value.

 

Dated: 28-2-2025