What does mean by Annual value of house property? How it can be calculated?

Annual value of house property definition is found Under section 23 (1a). The annual value is the amount which the property will earn if it is lent from year to year. The annual value of house property may not be the actual rent that is being received but it is a notional value which could have been derived, if the property had been rented. The annual value is the actual rent that is received in excess of the reasonable rent. The annual value of the property must be calculated after deducting any taxes that the local authorities have levied and have been paid by the owner.

The annual value of a house property would be its reasonable rent. But if the actual rent is higher, then it would be considered as the annual value. The calculation of annual value is not calculated just from actual or reasonable rent. The annual value cannot exceed the rent fixed by the rent controller. If the actual rent is more than the rent fixed by the controller, then annual value would be the actual rent.

The owner of the land sometimes meet other obligations of the tenant as well like water and electricity bills. The defacto rent (what actually should be) will be calculated by deducting the value of these obligations. If these services are being paid for by the tenant, their cost has to be added to the rent. Municipal taxes and repairs paid by the tenant should not be added.

Various factors that have to be considered for calculating annual value are:

  • Municipal Valuation: This is the value of the property estimated by the municipal authorities for the purpose of levying municipal tax.
  • Actual rent: is the rent that has been received or is receivable from the tenant.
  • Reasonable rent: refers to the rent of other similar properties in the locality.

Standard rent: is the rent fixed under the Rent Control Act. No other type of rent can be considered if the standard rent has been fixed, even if they are higher than the standard rent because landlords cannot collect rent higher than the rent fixed by the authorities.

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