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Now lets take our discussion to the next level.
1)Â Â Â Â Â How to Calculate Gross Annual Value?
Mr. X owns a property at Mumbai. Municipal Value is 1, 80,000. Fair rent is 2, 15,000. He has given it on rent in the past financial year for 10 months. Actual rent received is 30,000 per month. The house is vacant for 2 months in the past financial year.
| Municipal Value | Rs. | 180,000 |
| Fair Rent | Rs. | 215,000 |
| Annual Rent (for 10 months) | Rs. | 300,000 |
| Gross Annual Value is calculated as below: | ||
| Step 1: Reasonable expected rent (MV or FR – whichever is higher) | Rs. | 215,000 |
| Step 2: Annual Rent (for 12 months =30,000 x 12) | Rs. | 360,000 |
| Step 3: Higher of Step 1 and Step 2 | Rs. | 360,000 |
| Step 4: Less Loss Due To Vacancy (Rs. 30,000 x 2) | Rs. | 60,000 |
| Gross Annual Value (Step 3 – Step 4) | Rs. | 300,000 |
2)Â Â Â Â Â How to Calculate Net Annual Value?
Deduct municipal taxes from Gross Annual Value to arrive at the Net Annual Value of your property.
The same Mr. X’s municipal taxes are 10, 000 annually.
| Gross Annual Value | 300,000 | |
| Municipal Taxes | Rs. | 10,000 |
| Net Annual Value (GAV less municipal taxes) | Rs. | 290,00 |
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3)Â Â Â Â Â How to Calculate Net Taxable Income from House Property?
Also, Mr. X has taken a home loan to buy this property. The loan amount is 15 lakhs. The interest component paid in the last financial year is 1, 50,000 i.e., 10%. Now we calculate how much is Mr. X’s taxable rental income he has received from his property.
| Net Annual Value (GAV less municipal taxes) | Rs. | 290,000 |
| Less Deductions under Section 24 | ||
| Standard Deduction (30% of Net Annual Value) | Rs. | 87,000.0 |
| Interest on Borrowed Capital | Rs. | 150,000 |
| Taxable Rental Income from Property | Rs. | 53,000.0 |
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4) Â Â Â What is the difference between classifying my property as Let Out, Self Occupied or Deemed to be let out?
Ans: For the purpose of taxability of Income from House Property, House property is classified as:
- Let Out – House Property actually given out on rent
- Self Occupied – House Property self occupied by owner – you actually live in this house
- Deemed to be Let Out – In case of owning more than one house property, one property is treated as Self Occupied, and the other is automatically classified as Deemed to be Let Out property.
Read Rest Of The FAQs here:
FAQ on House Property – Vol.II
FAQ on House Property – Vol.III