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Unit 8: Income from House Property

2. Municipal valuation of the property. Notes
3. Fair rental value (market value of a similar property in the same area).
4. Standard rent payable under the Rent Control Act.
Actual Rent: It is the most important factor in determining the annual value of a let out house
property. It does not include rent for the period during which the property remains vacant.
Moreover, it does not include the rent that the tax payer is unable to realize, if certain conditions
are satisfied. Sometimes a tenant pays a composite rent for the property as well as certain
benefits provided by the landlord. Such composite rent is to be disintegrated and only that part
of it which is attributable to the letting out of the house property is to be considered in the
determination of the annual value.

Municipal Valuation: Municipal or local authorities charge house tax on properties situated in
the urban areas. For this purpose, they have to determine the income earning capacity of the
property so as to calculate the amount of house tax to be paid by the owner of the property. But
this valuation cannot be treated as a conclusive evidence of the rental value of the property,
although such valuation is given due consideration by the Assessing Officer.
Fair Rental Value: It is the rent normally charged for similar house properties in the same
locality. Although two properties cannot be alike in every respect, the evidence provided by
transactions of other parties in the matter of other properties in the neighbourhood, more or
less comparable to the property in question, is relevant in arriving at reasonable expected rent.

Standard Rent: Standard Rent is the maximum rent which a person can legally recover from his
tenant under a Rent Control Act. This rule is applicable even if a tenant has lost his right to apply
for fixation of the standard rent. This means that if a property is covered under the Rent Control
Act, its reasonable expected rent cannot exceed the standard rent.

Notes Gross Annual Value (GAV) would be calculated as follows:

Step 1: It includes three things:
• Determine Expected Rent and Actual Rent.
• Expected Rent = Higher of Municipal Value or Fair Rent but subject to Standard Rent
• Actual Rent = Rent for let out period – Unrealised Rent of relevant previous year

Step 2: If actual rent is more than Expected Rent than Actual rent otherwise expected Rent
Step 3: If property remain vacant and annual value decline due to vacancy then such
decline value shall be considered

GAV = According to Step 2 (if no vacancy) and According to Step 3 (if vacancy is there)

The Gross Annual Value is the municipal value, the actual rent (whether received or receivable)
or the fair rental value, whichever is highest. If, however, the Rent Control Act applies to the
property, the gross annual value cannot exceed the standard rent under the Rent Control Act, or
the actual rent, whichever is higher.
If the property is let out but remains vacant during any part or whole of the year and due to such
vacancy, the rent received is less than the reasonable expected rent, such lesser amount shall be
the Annual value.

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