How To Calculate Annual Value Of House Property For Income Tax
Annual value of the property is the sum for which a property is reasonably expected to be let from year to year. Hence, annual value of the property is a notional rent which could have been derived, had the property been let. Annual value of property plays an important role in Income Tax return filing. In this article, we look at the procedure for calculating annual value of property in detail.
Factors Determining Annual Value of Property
The following four factors play an important role in determining the annual value of a property:
- Actual Rent Received
Actual rent received or receivable is an important factor in determining the annual value of the property. The actual rent received could be dependent on various considerations. If the owner of the property agrees to bear certain obligations like water or electricity bill, the rent will be calculated by reducing the rent received by the amount spent by the owner on meeting such obligatory expenses.
On the other hand, if certain obligatory expenses to be borne by the owner is met by the tenant, then the rent will be computed by increasing the rent paid by the amount spent by the tenant on meeting the obligations of the owner.
- Municipal Value
Municipal value is determined by the municipal authorities for levying municipal taxes on house property. Municipal authorities normally charge house tax/municipal taxes on the basis of annual letting value of such house property, which is determined by it based upon many considerations.
- Fair Rent
Fair rent is the rent which is a similar property can fetch in the same or similar locality if it is let for a year. Fair rent can be easily ascertained for apartments based on prevailing rentals.
- Standard Rent
Standard rent is fixed under the Rent Control Act. If the standard rent has been fixed for any property under the Rent Control Act, the owner cannot be expected to get a rent higher than the standard rent fixed under the Rent Control Act. Therefore, standard rent could play an important factor in determining annual value of property.
Procedure for Calculating Annual Value of Property
Based on the nature of property and utility, the annual value of property could fall into five different categories as follows:
- House property let throughout the previous year.
- House property which is let and was vacant during the whole or any part of the previous year.
- House property which is part of the year let and part of the year self-occupied.
- House property which is self-occupied for residential purposes or could not actually be self-occupied owing to employment at any other place.
- Annual value of house property held as a stock-in trade which was not let during the whole of the previous year.
However, for the sake of simplicity, annual value of property in most cases can be determined as the value after deduction of municipal taxes, if any paid by the owner.
