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How To Calculate Gross/ Net Annual Value Of House Property?

You must be having a home or might be 2 or more. If you are having more than 1 house then Income tax department ask you to calculate the Annual Value of your house so that they can determine tax liability on it.

Now you must ask What is House Property?, Well house property includes :-

  • Residential House,
  • Shops,
  • Godown,
  • Cinema Building,
  • Workshop building,
  • Hotel
  • Land etc.

The Annual value of house property which you are using as for your own Residential Propose will be NIL as you are not getting any income from it. If you had let-out your house property and getting any income from it then you have to pay tax on it.

NOTE :- If you are having 2 house and one you are using one as Residential and another is not let-out but in this case IT Law will treat it as Let-Out as you cant live in 2 house at the same time and have to calculate its Annual Value and pay tax on it.

Annual Value Of House Property

Image Credit :- Flickr

Before I tell you how can you calculate your Annual Value of house property its worth to know the meaning of some terms before which we are going to use :-

  • Fair Rent :- Its rent which is similar types of building in same locality are getting.
  • Municipal Value :- It’s the rent determined by your Municipality for charging Municipal tax.
  • Standard Rent :- It is the higher Rent possible to get set by Rent Control Act.
  • Actual Rent :- It’s the actual rent you are getting by letting out your property.

Here For Example, We assume the values of rent :-

Fair Rent = Rs 20,000*12 = 2,40,000

Municipal Value = Rs 10,000*12 = 1,20,000,

Standard Rent Rs 22,000*12 = 2,64,000

Actual Rent Rs 18,000*9 = 1,62,000

Note :- Actual Rent received will be the rent which you will get, if your house is vacant for some period then deduct Rent for that period from Actual rent.

For Eg :- You had let out house for Rs. 18,000/month which means you will get 2,16,000 as rent yearly so it will be your Actual Rent, but if your house is vacant for 3 months then your Actual rent will be 1,62,000, as you hadn’t get Rent for 3 months which is 54000.

Now let see how Annual Value Of House Property is determined :-

  • First compare Fair Rent and Municipal Value and select Higher of them, You will get Reasonable Expected Rent, here from the above values we can simple figure out that – out of fair rent and municipal rent – Fair rent is higher i.e Rs 2,40,000 so will take fair rent as reasonable expected rent.
  • Now compare Reasonable Expected Rent with Standard Rent and select the lower of them, you will get the Expected Rent (also known as Annual Letting Value), here out of reasonable expected rent and standard rent – reasonable expected rent is lower which is Rs 2,40,000.
  • Now compare Expected Rent with your Rent Received or Receivable or Actual Rent and select the highest of them and you will get Gross Annual Value of your house. Here out of expected rent and actual rent – expected rent is higher i.e Rs 2,40,000.

Now we had got GAV or Gross Annual Value of a house i.e Rs 2,40,000, now we need to calculate NAV or Net Annual Value or Annual value of your house.

To calculate NAV use this formula :-

NAV = GAV(-) Municipal Taxes

That’s it, here is the annual value of your house.

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