## Computation of Income from House Property
### The standard format
| Particulars | Amount | Amount |
|---|---|---|
| Gross Annual Value (GAV) | XXXX | |
| Less: Municipal Taxes paid | (XXX) | |
| Net Annual Value (NAV) | XXX | |
| Less: Deductions u/s 24 | ||
| (a) Standard Deduction — flat 30% of NAV | (XXX) | |
| (b) Interest on borrowed capital | (XXX) | (XXX) |
| Income from House Property | XXXX |
---
## Determining GAV — the 3-step approach
### Step 1 — Expected Rent (ER)
```
ER = Higher of (Fair Rent, Municipal Value), but RESTRICTED to Standard Rent
```
- Fair Rent (FR): rent a similar property in the same locality would fetch.
- Municipal Value (MV): value assessed by municipal authorities.
- Standard Rent (SR): ceiling set under the Rent Control Act — ER can never exceed SR.
- ER is computed for 12 months. Exception: if the property is purchased/constructed/sold during the year, ER is taken only for the period of existence and ownership (existence judged from the completion certificate).
### Step 2 — Actual Rent Received
```
Actual Rent Receivable (rent p.m. × months let out)
Less: Unrealised Rent (Rule 4)
= Actual Rent Received
```
### Step 3 — Gross Annual Value
Case 1 — Section 23(1)(c): Actual rent is lower than ER ONLY because of vacancy
- First, recompute actual rent as if there were no vacancy (add back the vacancy-period rent).
- If that rent-without-vacancy is higher than ER, then the loss is purely due to vacancy, and GAV = Actual Rent Received (Step 2) — the vacancy benefit is preserved.
Case 2 — Section 23(1)(b): Actual rent (even without vacancy) is STILL lower than ER
- Here the shortfall is not due to vacancy.
- GAV = higher of Step 1 (ER) or Step 2 (Actual Rent).
---
## From GAV to NAV — Municipal Taxes
| Particulars | Amount |
|---|---|
| Gross Annual Value | XXXX |
| Less: Municipal taxes paid | (XXX) |
| Net Annual Value | XXXX |
Municipal taxes rules:
- Deductible only if actually paid by the owner during the relevant PY (cash basis).
- If the tenant bears municipal taxes → no deduction for the owner.
- Taxes on a property outside India are also deductible if that property is chargeable u/s 23.
Unrealised Rent (Rule 4) — deductible from Actual Rent Receivable only if all conditions are met:
1. Tenancy is bona fide.
2. The defaulting tenant has vacated or steps have been taken to evict.
3. The tenant does not occupy any other property of the assessee.
4. Reasonable steps have been taken to recover the rent (legal proceedings if practical).