Sec 23 of income tax act by amanpreet kaur at lexcliq

Sec 23 of income tax act deals with determination of annual value of house property-

  1. The annual value of any property shall be the sum for which the property exempted to be let from year to year.
  2. It may neither be actual rent received nor the municipal valuation of the property and the fair rental value of the property.
  3. There are 4 types of values of the house property are as under :
  • Actual rent received or receivable – the rent which is received by the owner of the house property.
  • Municipal value of house property – rental value fixed by municipal committee or corporation.
  • Fair rental value – land which is provided in similar locality.
  • Standard rental value – it is fixed under Rent Control Act.

Computation of annual value of property –

Step1 – determine the gross annual value

Step 2 – from gross annual value, municipal tax is deducted.

———-balance will be annual value of property——-

Different categories of property –

  1. Property let for throughout the year – The sum for which the property might reasonably be expected to let from year to year.

Actual rent received is more than expected rent –  In case where the actual rent which has been recieved is more than the expected rent then we have to take the actual rent which is higher than the expected rent.

———– In clause (a) if the municipal value (expected rent) is higher than fair rental value then the municipal value shall be taken as an annual value now we have to determine the gross annual value of house property. Further we have to deduct the tax which have been levied by local authorities in respect of the property.

                       {Net Annual Value = Gross Annual Value – Tax levied by the local authorities}

Ex- A have 2 residential units which he has let out for rent.

Municipal value of property is 1,20,000 of both

fair rental value is 1,10,000

standard rental value = 1,30,000

the rent per unit per mm = 70,000

municipal tax paid by A = 12,000

therefore, net annual value = 14,000 – 12000 (GAV – tax) = 1,28,000.


  1. House property which is let and was vacant for or during the whole part of the previous year – The annual value of such property shall be deemed.
  • The sum for which the property shall be expected to let from year to year.
  • where the property is let and the actual rent received or receivable is more than the expected rent.
  • Where the property is let and was vacant during the whole for any part of the previous year and owing ton such vacancy and actual rent received by the owner is less than the sum under clause (a).

Treatment of unrealized rent – The actual rent received or receivable shall not include in amount of rent which the owner cannot realize subject to following conditions:

  1. Tenancy must be bona-fide
  2. The defaulting tenant has vacated the property
  3. The defaulting tenant is not in occupation of any other property of assesse
  4. The assesse has taken all the reasonable steps to institute reasonable proceedings for recovery of unpaid rent.

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