Computation of income from a property which is let out throughout the year

​​​​​​​​In the case of a property which is let-out throughout the year, Income chargeable to tax under the head “Income from house property” is computed in the following manner:

Now we will understand the computation of Gross annual value

Computation of gross annual value of a property which is let-out throughout the year

​To calculate the gross annual value of a property which is let-out throughout the year is determined in the following three steps are followed:

First Step: Compute reasonable expected rent of the property. Reasonable expected rent will be higher of the following:

• Municipal value of the property or
• Fair rent of the property

If a property is covered under Rent Control Act, then the reasonable expected rent cannot exceed standard rent

Note 1: Meaning of Municipal Value

For collection of municipal taxes, local authorities make periodic survey of all buildings in their jurisdiction. Such value determined by the municipal authorities in respect of a property, is called as municipal value of the property.

Note 2: Meaning of Fair Rent

It is the reasonable expected rent which the property can fetch. It can be determined on the basis of rent fetched by a similar property in the same or similar locality.

Note 3: Meaning of Standard Rent

It is the maximum rent which a person can legally recover from his tenant under the Rent Control Act. Standard rent is applicable only in case of properties covered under Rent Control Act.

Second Step: Compute actual rent of the property.

Actual rent means the rent for which the property is let out during the year. While computing actual rent, rent pertaining to vacancy period is not to be deducted. However, unrealised rent (*) is to be deducted from actual rent if conditions specified in this regard are satisfied.

(*) Unrealised rent is the rent of the property which the owner of the property could not recover from the tenant, i.e., rent not paid by the tenant. If following conditions are satisfied, then unrealised rent is to be deducted from actual rent of the year:

➣ The tenancy is bona fide.

➣ The defaulting tenant has vacated the property, or steps have been taken to compel him to vacate the property.

➣ The defaulting tenant is not in occupation of any other property of the taxpayer.

➣ The taxpayer has taken all steps to recover such amount, including legal proceedings or he satisfies the Assessing Officer that legal proceedings would be useless.

Third Step: Compute gross annual value (Gross annual value will be higher of amount computed at step 1 or step 2).

We can understand this by following illustration:

Below given are the details of rent of three properties of Mr. Parth                                             

Gross annual value will be computed as follows:

Step 1: Compute reasonable expected rent of the property.

Step 2: Compute actual rent of the property.

Step 3: Compute gross annual value.

Based on these steps the computation will be as follows

#: Amount at Step 1 (,i.e., Reasonable expected rent) is higher of municipal value or fair rent (subject to standard rent).

##: Amount at Step 2 is actual rent after deducting unrealised rent., i.e., Rs. 9 lakh (11 lakh – Rs. 2 lakh) in case of property X, Rs. 0.50 lakh in case of property Y and Rs. 11 lakh (Rs. 12 lakh – Rs. 1 lakh) in case of property Z.

###: Gross annual value will be higher of amount at Step 1 or Step 2.​

Computation of income from self occupied property ​​​​​​​​

A self-occupied property means a property which is occupied throughout the year by the taxpayer for his own residence.

In case of a self-occ​upied property income chargeable to tax under the head “Income from house property” is computed in following manner:

From the above computation it can be observed that “Income from house property” in the case of a self-occupied property will be either Nil (if there is no interest on housing loan) or negative (i.e., loss) to the extent of interest on housing loan.

#Deduction in respect of interest on housing loan in case of a self-occupied property cannot exceed Rs. 2,00,000. (under new tax regime this deduction is allowed only for rented property) Deduction of municipal taxes paid during the year will not be allowed in case of self-occupied property.

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