Gross Annual Value of your House Property – Income Chargeable Under the head income from house property

Gross Annual Value of your House PropertyFor the purpose of calculating the taxable amount of house rent, we have to first derive the gross annual value of the property. Gross Annual value will be derived as follows;

Derive the expected rent for your house property

To derive the expected rent of your house property you need to follow the following steps;

  1. Calculate the Municipal and Fair Value of the property
  2. Take the higher amount of step 1
  3. Compare step 2 with your standard rent. Restrict step 2 amount to the extent of standard rent i.e. if the standard is higher than step 2 then you need to take standard as the value or if standard is lower than step 2 then the amount derived will the value i.e. the step 2 amount can not exceed the standard rent.

Let us say, the amount that is arrived above is your EXPECTED RENTAL VALUE of your house property. 

Derive Gross annual value

Now we will be deriving gross annual value or GAV from the above expected rental value of the property.

  1. Calculate actual rent received or receivableunrealised amount (before deducting loss due to vacancy)
  2. From step 1 and the expected rent value calculated above, arrive at the higher of two
  3. Calculate loss due to vacancy
  4. Step 3 – Step 4 is your GAV of the property.

Relevant Points for Calculating GAV

  • If the property is vacant for some period and due to such vacancy the actual rent received or receivable is lesser than the expected (i.e. fair or municipal or standard rent) then actual rent received or receivable should be considered for the purpose of income from house property as GAV.

For example: if your expected rent derived is 50, 000 and your house was vacant for 3 months. Due to this vacancy you have received a rent of Rs. 40, 000 which is lesser than the expected amount derived then for income tax purpose Rs. 40, 000 will be considered as GAV.

  • For Income tax purpose expected rent of the house is the higher of municipal valuation and fair value subject to the maximum limit of standard rent of the property as per the rent control act applicable to such property.

What is Municipal Value

Local authority of the area where the building is situated do periodical valuation of all buildings in there locality. You can consider that valuation as your municipal value.

What is Fair Value

Fair value of your house can be determined on the basis of rent fetched by a similar property in the same or similar locality.

What is Standard Rent of the Property

If your property covered under Rent control act then the amount that is fixed under this act will be the standard rent of the house property.

For Example: If municipal value of your house is Rs. 20, 000, fair value is Rs. 26, 000 and standard rent is Rs. 25, 000 then gross annual value will be derived as follows:

  1. higher of municipal value and fair value i.e. higher of Rs. 20, 000 and Rs. 26, 000 = Rs. 26, 000
  2. Reasonable expected value of your house will be restricted to the limit of standard rent so in our case it will be restricted to Rs. 25, 000.

How to derive at rent actually received or receivable

To calculate rent received or receivable you need to take the actual rent you received or to be received and deduct the unrealized portion from it to arrive at the figure.

If you receive composite rent then part of the amount received towards the house should be considered as rent and the other part towards services and amenities should not be considered for rent.

What is unrealized rent of your house?

Loss due to vacancy

Loss due to vacancy has to be calculated by taking the amount received by a comparable property in similar or near by location and arriving at the rent amount you lost due to such vacancy period.

Gross annual value as discussed above will be calculated after taking out the loss due to vacancy from the figure that is arrived in step3 (i.e. reasonable expected value or rent received or receivable which ever is higher).

You need to deduct the municipal taxes you paid to your local authorities to arrive at net annual value. You can deduct municipal taxes only when it has been paid by you during the previous year. Municipal taxes paid to foreign authority with respect to the property located at such foreign country will also be eligible for deduction.

Format of Calculating GAV of House Property

Steps Particulars Calculation Amount in INR
1 Municipal Value XXX
2 Fair Value XXX
3 Higher of the Municipal and Fair Value XXX
4 Standard Value XXX
5 Expected Rental Value of the property subject to the standard rent value XXX
6 Actual Rent Received or Receivable minus unrealized amount XXX
7 Gross Annual Value (higher of step no.5 and step no.6 will be the gross annual value except in the case of vacancy)   XXX

Examples of Deriving at Gross Annual Value

Question:

Suppose you have a property in Chennai and the municipal valuation of such property is Rs. 90, 000, fair valuation is Rs. 1, 00,000 and standard rent is Rs. 80, 000. During the year the property was let out for an amount of Rs. 10, 000 per month. Calculate the Gross Annual Value of such property?

Ans:

SR. No Particulars Calculation in INR Amount in INR
1 Municipal Valuation 90, 000
2 Fair Valuation 1, 00,000
3 Standard Valuation 80, 000
4 Expected Rental Valuation (Fair or municipal rent which ever is higher subject to maximum of standard rent) 80,000
5 Rent Received or Receivable 10, 000 *12 1, 20,000
6 Gross Annual Value (higher of sr. no 4 and sr. no 5) 1, 20,000

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