181 Gross annual value Para 68.

Gnnss annual value is deternined as follows

Step l Find out reasonable expected rent of the property [see para 68.1-1]
Step ll Find out rent actually received or receivable after excluding unrealized rent but before deducting loss due
to vacancy [see para 68.1-2)
Step II Find out which one is higher- amount computed in Step I or Step I.
Step 1V Find out loss because of vacancy
Step V Step III minus Step IV is gross annual value [see para 68.1-3]
Where the house property is held as stock-in-trade and it is not let during the whole or any part of the previous
year, the annual value of such property (or part thereof) shall be taken as nil. However, this concession 1s
available only for a period up to 2years from the end of the financial year in which the certificate of completion
of construction of the property is obtained from the competernt
authority.
68.1-1 STEP -FIND OUT REASONABLE EXPECTED RENT .SEC. 23UJA)|- Reasonable expected rent is deemed to be the sum
for which the property might reasonably be expected to be let out from year to year.
In determining reasonable rent, several factors have to be taken into consideration, such as, location of the
property, annualratablevalue oftheproperty fixed by municipalities, rents of similar properties inneighbourhood,
rent which the property is likely to fetch having regard to demand and supply, cost of construction of the
property and nature and history of the property. These factors play a vital role in determining reasonable
expected rent of a house property. In a majority of cases, however, expected rent can be determined by taking
into consideration the following factors:
a. municipal valuation of the property [see para 68.1-1la]; or
b. fair rent of the property (see para 68.1-15],
The higher of (a) or (b) is generally ttaken as expected rent.
If, however, a property is covered by a Rent Control Act, then the amount so computed cannot exceed the
'standard rene [see para 68.1-1c] determinable under the Rent Control Act.
68.1-1a MUNICIPAL VALUATION -For collecting municipal taxes, local authorities make a periodical survey of all
buildings in their jurisdiction. Such valuation may be taken as a strong evidence representing the earning
capacity of abuilding. Itcannot, however, beconsidered to be aconclusiveevidence. In some bigcities (like Delhi,
Mumbai, Chennai and Kolkata) municipal authorities determine net ratable value after deducting 10 per cent
of the gross ratablevalue on account ofrepairs and an allowance for service taxes (suchas sewerage tax and water
tax). The net municipal valuation, therefore, requires an adjustment for determining expected rent for income
tax purposes.
68.1-1b FAR RENT OF THE PROPERTY -Fair rent of the property can be determined on the basis of a rent fetched by
asimilar property in the same or similar locality. Though two properties cannot be alike in every respect, the
evidence afforded by transactions of other parties in the matter of other properties in the neighbourhood, more
or less comparable with the property in question, is relevant in arriving at reasonable expected rent.
68.1-1c STANDARD RENT UNDER RENT CONTROL ACTS - Standard rent is the maximum rent which a person can
legally recover from his tenant under a Rent Control Act. The Supreme Court has observed in a few cases' that
alandlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent
under the Rent Control ActThis rule is applicable evenifatenant has lost his right to apply for fixation of the
standardrent. This rule is also applicable to the owner himself. In otherwords, if aproperty is covered under
the Rent Control Act, its reasonable expected rent cannot exceed the standard rent (fixed or determinable) under
the Rent Control Act.
68.1-1d PROVISION ILLUSTRATED- As mentioned earlier, the reasonable expected rent is computed on the basis of
three factors, namely
a. municipal valuation (MV),
b. fair rent of the property (FR); and
c. standard rent of the property (SR).

4. Sleila Kaushisl1 v. CIT [1981] 7 Taxman 1 (SC), Amolak Ram Khosla v. CIT [(1981] 7 Taxman 51 (SC).
Para 68.1 Income from house property 182
The higher of (MV) and (FR), subject to maximum of (SR) is reasonable expected rent.
The example given below illustrates the aforesaid propositions (Rs. in thousand
B D
A
40 40 40 40
Municipal value (MV) 46 46 48 51
46
Fair rent (FR) 35 45 63
NA 45
Standard rent (SR)
Reasonable expected rent under Step I MV or FR 45 51*
46 45 35
whichever is higher, subject to maximum of SR]
Reasonable expected rentcan, however, be 0wer than
*Reasonable expected rent cannot exceed the amount ofstandard rent. standard rent is the
maximum
amount
standard rent- see Dr. Balbir Singh v. MCD (1985] 152 ITR 388 (SC). In other words,valuation andfair rent) isthe reasonable
of reasonable expected rent. In the case of E, Rs. 51,000(being higher of municipal rent: Rs. 63,000), it is taken as reasonable
expected rent. Since this amount is lower than the maximum ceiling(ie., standard
expected rent. receivedd or receivable
68.1-2 STEP II - FIND OUT RENTACTUALLY RECEIVED OR RECEIVABLE- For the prpose of
Step lI, rent
shall be calculated as follows
is available for letting out XXXX
Rent of the previous year (or that part of the previous year) for which the property 1 XXXX
Less : Unrealised rent if a few conditions are satisfied [see para 68.1-2a] XXXX
Rent received/ receivable before deducting loss due to vacancy
The following points should be noted computation of rent received/receivable as given
above
deducted from the
1. Loss due to vacancy shall not be
It shall be deducted under Step IV.
as well as certain benefits provided
by the landlord. To
composite rent of property
Z. Sometimes a tenant pays a
determinerentreceived/receivable, composite rentmust be disintegrated and itis only that part of it attributable
calculation.
to the let out of property which
would form the basis for the aforesaid cannot be added to actual rent
municipal tax realised from the tenant
tenant's) share of Co. I td
3. Occupier's (i.e., municipal tax-CIT v. Gillanders Arbuthnot &
received/receivable, as it is the occupier's duty to pay
[1983] 142 ITR 598 (Cal.). to rent
repairs, the amount spent by the tenant cannot be added
4. If the tenant has undertaken to bear the cost of (1965] 57 ITR 609 (Cal.).
received or receivable-CITv. Parbutty Churn Law
or receivable on pro rata basis.
5. A non-refundable deposit will be included in rent received
6. A refundable deposit canot be included in rent received or receivable.
7.Advance rent cannot be rent received/receivable of the year of receipt.
8. Commission paid by the owner of a property to a broker for rental inconme is not deductible.
IÉ maintenance charges are recovered from the tenant by aservice provider (and not by the larndlord), such
maintenarne charges cannot be added to actual rent received/receivable. Conversely,if maintenance charges
are collected by the landlord, it shall be excluded from actual rent received/receivable in order to calculate rent
of the property.
68.1-2a WHEN UNREALISED RENT SHALL BE EXCLUDED [EXPLN. TO SEC. 23(1) - Unrealised rent (which the owner could not
realise) shall be excluded from rent received/receivable only if the following conditions are satisfied -
a. the tenancy is bona fide ;
b. the defaulting tenant has vacated, or steps have been takern to compel him to vacate he property;
c. the defaulting tenant is not in occupation of any other property of the assessee; and
d. the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the
or satisfies the Assessing Officer that legal proceedings would be useless. unpaid rent
68.1-3 COMPUTATION WITH THE HELP OF ILLUSTRATIONS- To have better understanding, the following problems are
given
Problems
68.1-3P1 X Y, Z, Aand Bseparately own the following properties
183 Gross annual value Para 68.1

(Rs. in thousand)
H1 H2 H3 H4 H5
A B
Municipal value (MV). 105 105 105 105 105
Fair rent (FR) 107 107 107 107 107
Standard rent under the Rent Control Act (SR). h....
NA 88 88 135 135
Actual rent 103 112 86 114 97
Unrealized rent (conditions mentioned in para 68.1-2a are satisfed) 1 2 1 1
Period of the previous year (in months).. 12 12 12 12 12
Period during which the property remains vacant.. Nil Nil Nil Nil Nil
Find out the gross annual value for the assessment year 2023-24.
Solution : In this case gross annual value shall be determined as follows
(Rs. in thousand)
B

Computation of gross annual vlue

Step I- Reasonable expected rent of the property [MV or FR,
whichever is higher, but subject to maximum of SR] 107 88 88 107 107
Step II -Rent received/receivable after deducting unrealized 96
rent but before adjusting loss due to vacancy 102 110 85 112
107 110 88 112 107
Step IIl -Amount computed in Step I or Step Il, whichever is higher Nil
Step IV - Loss due to vacancy Nil Nil Nil Ni
107 110 88 112 107
Step V-Grossannual value is Step II minus Step IV
68.1-3EX Out the gross annualvalue In the following cnses for the 15sesstnent year 202324
(Rs. in thousand)

60 60
Municipal value (MV) 96 54 55
Fais tentER)...
94 79
Siendard rent undertheRent Control Act (SR)sg 78
Achual rent 93 106
The entie rent is realised. Properties are let out throughout the preiousyear. Find out the gross annual value for the assessment
year 2023-24.
68.1-3P2 Xowns a house property (municipal valuation: Rs. 1,45,000, fair rent: Rs. 1,36,000, standard rent: Rs. 1,24,000). It is let
out throughout the previous year (rent being Rs. 8,000 per month up to November 15, 2022 and Rs. 14,000 per month thereafter). X
transfers the property to Yon January 31, 2023. Find out the gross annual value of the property in the hands of Xfor the assessment
year 2023-24.
Solution: Computation of gross annual value
Rs.
Municipal value from April 1, 2022 to January 31, 2023 (Rs. 1,45,000+12 x10) (MV) 1,20,833
1,13,333
Fair rent from April 1, 2022 to Jarnuary 31, 2023 (Rs. 1,36,000 +12 x10) (FR) 1,03,333
Standard rent from April 1, 2022, to January 31, 2023 (Rs. 1,24,000 + 12 x 10) (SR)
subject to maximum
Step I- Reasonable expected rent of the property [MV or FR, whichever is higher, but 1,03,333
of SR]
to vacancy
Step lI- Rent received/receivable after deducting unrealized rent but before adjusting loss due 95,000
(Rs. 8,000 xTh+ Rs. 14,000 x24) 1,03,333
Step III -Amount computed in Step I or Step I, whichever is higher Nil
Step IV - Loss due to vacancy
Step V- Gross annual value is Step II minus StepIV 1,03,333

year 2023-24.
68.1-3E2 In problem 68,1-3P2, And out gross annual value in Bhe hands of Yfor the assessnent
assessment
68.1-3P3 Find out the gross annual value in the case ofthe following properties let out throughout the previous year for the
year 2023-24
Para 68.1 Income from house property 184
(Rs. in thousand)

60 60 112
Municipal value (MV)
60
68 68 117 112
66
62 70 115
117
Fair rent (FR) 62 115
67 73 121
Standard rent under the Rent Control Act (SR) 67 110
Annual rent 5 50
Unrealised rent of thc prvious ear 2022-23 oltich could not be realised ata 2 6 4
1 1
conditions of rule 4are satisficd (sec pam 68.1-2a] 1
Loss due to taanncy
Solution : whicheveris 68 115
FR, 62
Step I - Reasonable expected rent of the property[MV or 62 115
higher, but subject to maximum of SR] deducting unrealized rent but 65 61 68 7
70
Step Il - Rent received/receivable after 65 62 68 115
115
before adjusting loss due to vacarncy whichever is higher 1 1 1
Step III - Amount t computed in Step I or StepIIl, 64 61 67 114 115
Step IV - Loss due to vacancy
Step V- Gross annual value is Step III minus Step 1V
conditions of rule 4 are satisfied
(see para
The following points should be noted received/receivable only if
not be deducted
from rent
1. Unrealised rent shall be deducted from rent
satisfied, then unrealised rent shall received or
conditions are not
68.1-2a]. Conversely,,if these yearis deductible. In otherwords, unrealised
receivable.
unrealised rent of the current previous
satisfied,
2.Ifthe conditionss ofrule 4are deductible.
year(s) is not additionaltntornek
into consideration the following
rent of the earlier
problem68.1-3P3 atertaking I stens been taken to compel the tenant to vacate He
68.1-3E3Reoalculate grossanmal vnluein unated the property, nor hae
defulting tenant hás not
1 nthe cnse of X, te
property. propetthy of Y
tenant hus occupied another rcovery though Zagrees that legal
proceediwos
2 in the czseofY, the dehnaiting the of unpaid rent,
institutelegal proceedingsfor
3.Z has not taken any step to March 1 2023.
not be useless. toith effect from
rented out anoer property owned y mto efaulling tenant
4.Ahas
4.
5. Bsatisfies all the condihons of rule 2023-24 (there is no unreoliend
gross annual value in the case of the following properties for the assessment year
68.1-3P4 Findout the
rent) (Rs. in thousand)
A CD
61 60 80 140 140
60
Municipal value (per annum)(MV) 66| 64.5 78 78 150 150
65
Fair rent (per annum) (FR) 59 63 85 76 120 120
59.5
Standard rent under the Rent Control Act (per annum) (SR) 5 72 72 NA 96 144
Annual rent 72
Property remains vacant (in number of month) (1) (12) (5) (3) (12) (10) (10)
6 7.125 30 18 80 120
Loss due tovacancy
Solution :
Computation of gross annual value
Step i-Reasonabie expected rent of the property (MVor 59.5 59 63 80 76 120 120
FR, whichever is higher, but subject to maximum of SRJ
Step lI -Rent received/receivable after deducting un 96 144
realized rent but before adjusting loss due to vacancy 72 57 72 72 Nil
Stey II -Amount computed in StepIorStep Il, whichever 72 80 76 120 144
is higher 72 59
6 7.125 30 18 76 80 120
Step IV -Loss due to vacancy
66 51.875 42 62 Nil 40 24
Step V- Gross annual value is Step III minus Step IV
68.1-3E4 Recalculatethe gross annual value in the case ofA ifhis property renains vacant throughout the previois year 2022-23
and, consequently, the figure of annual rent is not avilable. Also recalculate groSs annual value in the cases of Cand Dif their
properties renain vacantfor one nonth only.