‘Annual Value’ of House Property & It’s Computation under Income Tax Act, 1961

Annual Value is the taxable value assigned to a property for calculating “Income from House Property”. It represents the property’s reasonable expected annual earning capacity.

Key Components of Annual Value

1. Gross Annual Value (GAV)

• For let-out properties: Higher of:
  • Actual rent received
  • Municipal valuation (standard rent)
  • Fair market rent
• For self-occupied: Zero (if only one property)

2. Net Annual Value (NAV)
   = GAV minus municipal taxes actually paid by owner
3. Standard Deduction

• 30% of NAV (allowed automatically for repairs/maintenance)

4. Interest on Home Loan Deduction

• Up to ₹2 lakh for self-occupied property
• No limit for let-out property

How Annual Value is Determined

Practical Example

For a let-out property:

• Municipal value: ₹2,40,000
• Actual rent: ₹3,00,000
• Municipal taxes paid: ₹20,000

Calculation:

1. GAV = Higher of ₹2.4L or ₹3L = ₹3,00,000
2. NAV = ₹3L – ₹20k = ₹2,80,000
3. Standard deduction = 30% of ₹2.8L = ₹84,000
4. Taxable value = ₹2.8L – ₹84k = ₹1,96,000

Special Cases

• Vacant property: Still taxable based on expected rent
• Partly self-occupied: Pro-rata calculation
• Co-owned property: Shared proportionally among owners

Annual Value forms the basis for calculating taxable income from house property after applying permitted deductions.

Special Scenarios

1. Partially Let-out Property
   • Calculate proportionately for let-out and self-occupied portions
2. Vacant Property
   • Still taxable based on expected rent (minus vacancy period allowance)
3. Co-owned Property
   • Each owner computes their share separately
4. Deemed Let-out (Multiple Properties)
   • Only one can be self-occupied
   • Others taxed on fair rental value

Key Points to Remember :

• Municipal taxes deduction only if paid in same financial year
• No GAV for one self-occupied property
• Interest deduction requires loan documentation
• Pre-construction interest (if any) deductible over 5 years