Income Tax Act, 1961 allows 2 house property to be declared as Self occupied while all others are compulsorily required to be declared as rented out. In case of Property which is let out there exists a concept of Deemed Annual Value, i.e first of all Deemed Annual Value is to be calculated, for which first we have to select higher of Municipal Value and Fair Rental Value of the House Property and higher of the two is to be compared with Standard Rent; now the lowest of standard rent and value determined earlier will be considered Deemed Annual Value.
For Eg:- Municipal Value Rs. 1 Lacs, Fair Value Rs. 1.5 Lacs and Standard Value Rs. 1.2 Lacs.
Sol:- Now Deemed Annual Value will be Rs. 1.2 Lacs(Lower of Rs. 1.2 Lacs and Rs. 1.5 Lacs (Rs. 1.5 Lacs being higher of Municipal Vale and Fair Value)
Thereafter if Actual Rent received is lower than Deemed Annual Value, then Deemed Annual Value shall be used to calculate Income under the head House property otherwise Actual Annual Rent will be used.
However in case your House Property remained vacant for a part of the year then Income Tax Provisions allow you to consider Actual Rent received or receivable (For period let out) for calculating Income under the head House Property even if same is less than Deemed Annual Value. This provision is brought to ensure that an assessee is not harassed in cases where he has already lost rent for few months.
For eg:- Municipal Value Rs. 1 Lacs, Fair Value Rs. 1.5 Lacs and Standard Value Rs. 1.2 Lacs. Property let out for 9 months @12000.
Sol:- Value to be considered Rs. 1.08 Lacs (Being Actual Rent Received/receivable for 9 months)
Legal Language supporting above provision to provide benefit to assessee as per Section 23(1)(‘c) is “where the property or any part of the property is let and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable”.
Now reading the words “property is let and was vacant during the whole” it can be interpreted that in cases where assessee was unable to let out the property for whole of the year then he will be allowed to consider NIL as annual value, further one more interpretation which exists is that in case property remained vacant for complete year then it cannot be said property is let and hence benefit u/s 23(1)(‘c) cannot be taken.
First interpretation does not seems correct as it will result in no difference between Self Occupied house and House which remained vacant for whole of the year, the same has also been ruled by Andhra Pradesh High Court in case of Vivek Jain.
However a contrary judgement has been made by Pune ITAT on the basis that in previous year’s property was let out and from the facts it appeared that assessee has put in his efforts to ensure property is let out. Since it is a litigious matter assessee should put in his efforts to rent out the property and should ensure property is let out for at least 1 month in order to take benefit of Section 23(1)(‘c) without taking any risk of litigation.
Thus in above eg if property let out only for 1 month @Rs. 12000, Value to be considered for the purpose of calculating Income from house property shall be Rs. 12000 only.
{Author is a CA Final Rank holder (AIR 34 – Nov’15) currently working in BPCL and can be reached on [email protected] or his Linkedin account – ( https://www.linkedin.com/in/ca-jatin-grover-a0aa3923 )}
(Republished With Amendments)
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i have bought a commercial space at Gurgaon in 2018, since purchase of this property, it is fully vacant.
In my Income tax calculation – do I need to calculate notional rent on the vacant apartment in Gurgaon and pay tax on it?
sir how does the actual rent without vacancy calculated …please reply sir
i have 4 commercial property in mumbai out of one 100%owner let out for two months remain vacant for ten months.second one 100%owner let out for nine months remain vacant for three months,third one 50%owner let out for nine months remain vacant for three months.fourth one 50%owner let out for full year.how can i calculate income tax liability for AY 2020-21?please guide me
I have a house in aurangabad where my parents are staying cannot be let out and have a house in pune where i am staying currently . How will be GAV calculated in this case , will i receive any tax deductions
we have a property in Hoskote. it is not let out and not rental income from this for ay 2020-21 and paying a rent for staying in a different house, as children study pupose. how to consider deemed rent for the vacant property
The article talks about the house property what if the property is commercial property which he is not able to find any person to take on rent, there is nothing called self occupied in case of commercial property , than how to interpret the term “property is let and was vacant during the whole”
Please provide citation of ANDHRA HIGH COURT AND ITATPUNE ON ABOVE SUBJECT OR ANY OTHER JUDGEMENT BY HIGH COURT OR SUPREME COURT.
As I understanding, the actual let out is not compulsory for section 23(1)(c), as wherever it is compulsory, it is written as actual let out like in section 23(3). Yes, one have to prove that they have tried for getting their House Property let out.
Dear Sir,
I bought an apartment in Guragon in 2005. As of now, it is vacant and not rented. I have only this one apartment bought by me.
Meanwhile, in 2016, I inherited a house from my father, where I am staying. This house is in Delhi, close to my work place.
In my Income tax calculation – do I need to calculate notional rent on the vacant apartment in Gurgaon and pay tax on it?
Thank you..
Pankaj Gulati
a nice guidance
Very good work Jatin Grover, You are doing good work on your facebook page as well, named as Jatin’s Tax Arena.