Determination of Annual Value (Section 23)

Determination of annual
value [section 23]

Where the property is let out throughout the previous year [Section
23(1)(a)/(b)]
Where the property is let out for the whole year, then the GAV would be
higher of the –
(a) Expected Rent (ER) and
(b) Actual rent received or receivable during the year
Where let out property is vacant for part of
the year [Section 23(1)(c)]
Where let out property is vacant for part of the year, loss due to
vacancy is deductible from the higher of Expected Rent and actual
rent received or receivable and remaining amount will be the GAV of
the property.
In the case of self-occupied property or
unoccupied property [Section 23(2)]
(a) If the property is self-occupied for own residence or was unoccupied
throughout the previous year, its Annual Value will be Nil, as no benefit is
derived by the owner from such property.
The expression “Unoccupied property” refers to a property which cannot be
occupied by the owner by the reason of his employment, business or
profession at a different place and he/she resides at such other place in a
building that does not belonging to him/her.
(b) The benefit of exemption of one self-occupied house (two self-occupied
properties - from A.Y 2020-21) is available only to an individual/HUF.
(c) No deduction for municipal taxes is allowed in respect with such property
Where a house property is let-out for part of the year
and self-occupied for part of the year [Section 23(3)]
(a) If a single unit of a property is self-occupied for part of the year and
let-out for the remaining part of the year, then the ER for the whole
year shall be taken into account for determining the GAV.
(b) The ER for the whole year shall be compared with the actual rent for
the let out period and whichever is higher shall be adopted as the
GAV.
(c) However, municipal tax for the whole year is allowed as deduction,
provided it is paid by the owner during the previous year.
In case of deemed to be let out property
[Section 23(4)]
a) Where the assessee owns more than one Residential property for self-occupation, then
the income from any one such property (two such properties - from A.Y 2020-21), at the
option of the assessee, shall be computed under the self-occupied property category and its
annual value will be nil..
(b) The other self-occupied/unoccupied properties shall be treated as “deemed let out
properties”.
(c) This option can be changed year after year in a manner beneficial to the assessee.
(d) In case of deemed let-out property, the ER shall be taken as the GAV.
(e) The question of considering actual rent received/receivable does not arise. Consequently,
no adjustment is necessary on account of property remaining vacant or unrealized rent.
(f) Municipal taxes actually paid by the owner during the previous year, in respect of the
deemed let out properties, can be claimed as deduction.
In case of a house property, a portion let out
and a portion self-occupied
(a) Income from any portion or part of a property which is let out shall
be computed separately under the “let out property” category and the
other portion or part which is self-occupied shall be computed under
the “self-occupied property” category.
(b) There is no need to treat the whole property as a single unit for
computation of income from house property.
(c) Municipal valuation/fair rent/standard rent, if not given separately,
shall be apportioned between the let-out portion and self-occupied
portion either on plinth area or built-up floor space or on such other
reasonable basis.
(d) Property taxes, if given on a consolidated basis can be bifurcated as
attributable to each portion or floor or on a reasonable basis
Deductions from annual value [section 24]
here are two deductions from annual value. They are –

(a) 30% of NAV; and
(b) Interest on borrowed capital
a) 30% of NAV is allowed as deduction
under section 24(a):
((a) This is a flat deduction and is allowed irrespective of the actual
expenditure incurred.
(b) The assessee will not be entitled to deduction of 30%, in the
following cases, as the annual value itself is nil.
(i) In case of self-occupied property or
(ii) In case of property held as stock-in-trade and the whole or any part
of the property is not let out during the whole or any part of the
previous year, up to 1 year (2 years - from A.Y 2020-21) from the end
of the financial year in which certificate of completion of construction
of the property is obtained from the competent authority.
b) Interest on borrowed capital is allowed as
deduction under section 24(b):
(Interest payable on loans borrowed for the purpose of acquisition,
construction, repairs, renewal or reconstruction of house property
can be claimed as deduction.
Interest payable on a fresh loan taken to repay the original loan raised
earlier for the aforesaid purposes is also admissible as a deduction.
Provision for arrears of rent and unrealized
rent received subsequently [section 25a]
Arrears of Rent / Unrealized Rent
• Taxable in the year of receipt/realization
• Deduction of 30% of rent received/realised is available
• Taxable even if assessee is not the owner of the property in the
financial year of receipt/realization.
Treatment of income from co-owned property
[section 26]
(1) Where property is owned by two or more persons, whose shares are definite and
ascertainable, then the income from such property cannot be taxed as income of an AOP.
(2) The share income of each co-owner should be determined in accordance with sections
22 to 25 and included in his individual assessment.
(3) Where the house property owned by co-owners is self-occupied by each of the co-
owners, the annual value of the property of each co-owner will be Nil and each co-owner
shall be entitled to a deduction of ` 30,000 / ` 2,00,000, as the case may be, under
section 24(b) on account of interest on borrowed capital.
(4) Where the house property owned by co-owners is let out, the income from such
property shall be computed as if the property is owned by one owner and thereafter the
income so computed shall be apportioned amongst each co-owner as per their specific
share.
Deemed ownership [section 27]
As per section 27, the following persons, though not legal owners of a property, are
deemed to be the owners for the purposes of section 22 to 26.
• Transfer to a spouse – In case of transfer of house property by an individual to his
or her spouse otherwise than for adequate consideration, the transferor is deemed
to be the owner of the transferred property. Exception– In case of transfer to
spouse in connection with an agreement to live apart, the transferor will not be
deemed to be the owner. The transferee will be the owner of the house property.
• Transfer to a minor child– In case of transfer of house property by an individual to
his or her minor child otherwise than for adequate consideration, the transferor
would be deemed to be the owner of the house property transferred. Exception– In
case of transfer to a minor married daughter, the transferor is not deemed to be
the owner.
• Holder of an impartible estate– The impartible estate is a property
which is not legally divisible. The holder of an impartible estate shall
be deemed to be the individual owner of all properties comprised in
the estate.
• Member of a co-operative society etc.– A member of a co-operative
society, company or other association of persons to whom a building
or part thereof is allotted or leased under a House Building Scheme of
a society/company/association, shall be deemed to be owner of that
building or part thereof allotted to him although the co-operative
society/company/ association is the legal owner of that building
• Person in possession of a property– A person who is allowed to take or
retain the possession of any building or part thereof in part performance of
a contract of the nature referred to in section 53A of the Transfer of
Property Act shall be the deemed owner of that house property.
• Person having right in a property for a period not less than 12 years– A
person who acquires any rights in or with respect to any building or part
thereof, by virtue of any transaction as is referred to in section 269UA(f) i.e.
transfer by way of lease for not less than 12 years, shall be deemed to be
the owner of that building or part thereof. Exception – In case the person
acquiring any rights by way of lease from month to month or for a period
not exceeding one year, such person will not be deemed to be the owner.

Determination of Annual Value (Section 23)

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Determination of Annual Value (Section 23)

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Determination of annual

value [section 23]

here are two deductions from annual value. They are –

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