what is Annual Value?
Annual value of house property on which the assessee is the owner/deemed owner and it is not used for the purpose of assessee’s business or profession is taxable under the head income from house property. Income from house property means the sum, which the property may yield as rental income. Actual receipt of rental income is not important for taxability .Thus, it is said that income from house property is notional head.
If the property is situated abroad it is taxable in the hands of residents only, and it will be taxed in the same manner as a property situated in India
However, income from house property specifically excludes
- Income from self occupied house
- Income from house meant for self residence but could not be occupied throughout the previous year on account of his service business or profession at any other place.
- Income from property used for assessee’s own business or profession
- Income from farm house, provided it is situated on or in the immediate vicinity of the agricultural land and it is used as dwelling house or a store house or an out-house
In computing income from house property annual value is an important factor, annual value means the income which the property might yield as rental income.
How to compute annual value
Annual value will be higher amount among the following
- Fair rent(rent of similar properties in the same locality) ,or
- Municipal value, or
- Actual rent received or receivable
If standard rent is fixed then, annual value will be the standard rent or actual rent, whichever is higher.
Amount computed will be gross annual value and In order to compute net annual value municipal tax (paid by the owner) is to be deducted from gross annual value.
What will be the annual value if there is unrealized rent?
In case if there is any unrealized rent, it will not be included in annual value, provided conditions laid down in Rule 4 are satisfied
Rule 4
- The tenancy is bonafide;
- The defaulting tenant has vacated , 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 assessee;
- The assessee has taken all reasonable steps to instituting legal proceedings for the recovery of the unpaid rent or satisfies the assessing officer that legal proceedings would be useless
Format of computing Income from let out house property
Gross annual value
less
- Municipal tax(paid by the owner)
Annual value
less
Deductions u/s 24
- 30 % of annual value(as standard deduction for expenses)
- Interest on loan taken for purchase, construction or repair of the house, relating to the previous year
- Interest on loan for the period prior to the previous year in which the house is completed is also allowed in five equal annual installments.
Taxable income from let out house property
Income from self occupied house
On self occupied house annual value will be nil, assessee can make deduction in respect of interest paid on loan and the loss arising from such property can be set off against income from other house property or under any other head of income. If, the assessee owns more than one house for his residence, only one house will be considered as self occupied and all other houses are deemed as let out.
However amount of deduction allowed in respect of interest on loan in the case of self occupied house is limited to Rs 30,000 or Rs 1,50,000 as the case may be.*
*
Where such property has been acquired constructed repaired renewed or reconstructed with borrowed capital, the maximum limit of deduction of interest shall be Rs 30,000
Where such house property is acquired or constructed with capital borrowed after 31.3.1999, the deduction on account of interest shall be allowed up to Rs 1,50,000