# Determination of Annual Value — Section 23

## Annual Value Framework

```

Gross Annual Value (GAV)

(-) Municipal Taxes paid by owner during PY

= Net Annual Value (NAV)

```

## Step 1 — Compute Expected Rent

```

Municipal Value (MV)

Step A: → Take HIGHER = (X)

Fair Rent (FR)

Step B: Compare (X) with Standard Rent (SR)

→ Take LOWER

→ Result = Expected Rent (ER)

```

The Standard Rent acts as a ceiling (under Rent Control Act).

## Step 2 — Compute GAV

```

Expected Rent (ER)

→ Take HIGHER = GAV

Actual Rent (AR)

```

Where Actual Rent = Rent Received / Receivable (subject to adjustments for Unrealised Rent and Vacancy — covered separately).

## Summary Visual

Step	Compare	Pick
1	MV vs FR	Higher
2	Result of Step 1 vs SR	Lower → Expected Rent
3	Expected Rent vs Actual Rent	Higher → GAV

Worked example

### Example 1

Example: A property has MV = ₹1,20,000; FR = ₹1,50,000; SR = ₹1,40,000; Actual Rent received = ₹1,60,000.

Step 1: Higher of MV (1,20,000) and FR (1,50,000) = 1,50,000
Step 2: Lower of 1,50,000 and SR 1,40,000 = Expected Rent = 1,40,000
Step 3: Higher of ER (1,40,000) and AR (1,60,000) = GAV = ₹1,60,000

### Example 2

Example (No SR): MV = ₹2,00,000; FR = ₹2,40,000; SR = N/A; AR = ₹2,20,000.

ER = higher of MV/FR = ₹2,40,000 (no SR to cap it)
GAV = higher of ER (2,40,000) and AR (2,20,000) = ₹2,40,000

⚠️ Common exam mistakes

Forgetting to cap with Standard Rent — leading to inflated Expected Rent.
Comparing MV/FR/SR all at once instead of the two-step process.
Using Actual Rent directly as GAV without first computing Expected Rent.

Bare-Act text Section 23(1) · Income-tax Act, 1961 · click to expand

Section 23(1): For the purposes of section 22, the annual value of any property shall be deemed to be — (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) 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.

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Determination of Gross Annual Value (GAV)

Worked example

⚠️ Common exam mistakes