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Income Tax Laws – I

Notes For the purpose of determining the Annual value, the actual rent shall not include the rent which
cannot be realized by the owner. However, the following conditions need to be satisfied for this:
1. The tenancy is bona fide;

2. The defaulting tenant has vacated, or steps have been taken to compel him to vacate the
property.
3. The defaulting tenant is not in occupation of any other property of the assessee;

4. The assessee has taken all reasonable steps to institute legal proceedings for the recovery
of the unpaid rent or satisfied the Assessing Officer that legal proceedings would be
useless.

Caselet Gross Annual Value Computation in India

Let us find out the Gross Annual Value in the case of the following properties of
Mr. Anurag:
Particulars (1) (2) (3) (4) (5)

Municipal value 52,000 1, 00,000 60,000 75,000 1, 80,000
Fair rent 60,000 1, 02,000 68,000 70,000 1, 85,000
Standard rent NA 90,000 70,000 60,000 1, 75,000
Actual rent receivable 55,000 95,000 72,000 72,000 1, 68,000

Unrealized rent _ _ 5,000 _ 42,000
Period of vacancy _ _ _ 8 months 1 month
Solution:
(1) Since Rent Control Act is not applicable, GAV will be the highest of municipal
value, fair rent and actual rent. Hence, the GAV will be ` 60,000.
(2) GAV cannot exceed the standard rent or actual rent, whichever is higher. Therefore,
GAV will be ` 95,000.
(3) Actual rent receivable will be reduced by the amount of unrealized rent i.e. ` 72,000 –
` 5,000 = ` 67,000. Now, GAV will be the highest of municipal value, fair rent and
actual rent, subject to the maximum of standard rent. Hence, GAV will be ` 68,000.
(4) GAV will be the actual rent receivable adjusted by the loss due to vacancy i.e.
` 72,000 – ` 48,000 = ` 24,000.
(5) Actual rent receivable will be reduced by the amount of unrealized rent and loss due
to vacancy i.e. ` 1,68,000 – ` 42,000 – ` 14,000 = ` 1,12,000. Now, we will take the
highest of municipal value, fair rent and actual rent, subject 78 to the maximum of
standard rent. So, GAV will be ` 1,75,000 reduced by the loss due to vacancy i.e.
` 1,75,000 – ` 14,000 = `1,61,000.

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