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Selection of Annual Rental Value (Gross Annual Value) for Let Out House Property

A-I. House Property Is Let Out For Full Year And There Is Neither Vacancy Nor Unrealised Rent

Step I.

Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step II.

(i) If actual rent received or receivable is more than ERV (Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

(ii) If actual rent received or receivable is less than ERV (Expected Rental Value) such ERV is Annual Rental Value (ARV) and step II is not applicable.

(a) This rule is applicable only if property is actually let out and not in case of deemed to be let property.

(b) This rule is applicable only if there is no unrealised rent.

 (c) Taxes paid by tenant, cost of repairs home by tenant, or interest on deposit made by tenant are not to be added back.

A-2. House Property Is Let Out And There Is Vacancy

A. If house property was vacant for full year the ARV is taken as NIL.

B. If house property was vacant for part of the year

(i) If rent actually received or receivable is more than ERV

Step I. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step II. If rent actually received or receivable for full year is more than ERV (Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

Step III. Such ARV is reduced by loss due to vacancy i.e. an amount of actual rent in proportion of vacancy.

(ii) If rent actually received or receivable is less than ERV

Step I. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step II. If rent actually received or receivable for full year is less than ERV (Expected Rental Value) then ERV so calculated shall be treated as Annual Rental Value (ARV).

Step III. Such ARV is reduced by loss due to vacancy i.e. an amount of actual rent in proportion of vacancy.

A-3. House Property Is Let Out And There Is Unrealised Rent

(i) If rent actually received or receivable (after deducting unrealised rent as per conditions given below) is more than ERV:

Step I. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step II. If rent actually received or receivable (after deducting unrealised rent as per conditions given below) is more than ERV (Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

Important Points :

If following conditions are fulfilled, the amount of unrealised rent shall be deducted out of actual rent received

(a) that the tenancy is bonafide

(b) that the tenant has vacated the house or steps have been taken to get the house vacated;

(c) the tenant is not occupying any other house owned by the assessee ; and

(d) that all efforts to realise the rent have failed or the assessing officer is satisfied that there is no way to recover the rent

(e) unrealised rent of earlier years is not deductible.

A-4. House Property Is Let Out, There Is Both Vacancy And Unrealised Rent

Step-I. Compare MRV with FRV and whichever is higher is compared with Standard Rent and whichever is less is ERV.

Step-II. If rent actually received or receivable for full year (after deducting unrealised rent as per conditions given) is more than ERV (Expected Rental Value) such rent received or receivable is Annual Rental Value (ARV).

Step-III. Such ARV is reduced by an amount of actual rent in proportion of vacancy. Firstly deduct unrealised rent out of annual rent received/receivable and compare and take the higher one and then deduct the loss due to vacancy and the value so arrived at shall be the gross annual value.

Step-IV. If rent actually received or receivable (after deducting unrealised rent and vacancy as per conditions given) is less than ERV, such ERV is ARV.

Treatment of Unrealised Rent [Explanation to Section 23(1)(b)&(c)]

Explanation to Section 23(1)(b) & 23(1)(c) clearly provides that where the property is let out, the amount of actual rent received or receivable by the owner shall not include, the amount of rent which the owner cannot realise. It implies that unrealised rent is to be deducted from annual rent receivable by the owner from the tenant.

The practical questions have been solved as per the explanation to Section 23(1)(b)&(c), i.e., unrealised rent has been deducted out of annual rent while calculating gross annual value.

Treatment of Unrealised Rent as per Income Tax Return Forms

However, in the Income tax return forms issued by the CBDT, unrealised rent has been shown as deduction from annual letable value, i.e., Gross annual value along with municipal taxes.

We, the authors, hold the view that the treatment of unrealised rent as shown in the Income tax return forms is not in line with the explanation to section 23(1)(b)&(c). The Income-tax authorities should look into the matter.

A-5. If House Property Is Let Out For A Part Of The Year Because It Is Either Purchased Or Constructed During The Previous Year .

Take all the rental values only for that period for which house property is in existence or owned by assessee during the previous year. Compare them and select ARV accordingly.

 
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