## Section 23 — Computing Gross Annual Value (GAV) of Let-Out / Deemed Let-Out Property

GAV is the foundation of HP computation. It is the higher of Expected Rent and Actual Rent received/receivable.

### Three-Step Procedure

#### Step 1: Compute Expected Rent (ER)

> ER = Lower of:

> - Higher of Municipal Value (MV) and Fair Rent (FR)

> - Standard Rent (SR)

Expressed as a flow:

```

MV ┐

├→ Higher → A ┐

FR ┘ ├→ Lower → Expected Rent

SR ───┘

```

#### Step 2: Compute Actual Rent (AR)

> AR = Actual rent for the let-out period − Unrealised rent (if conditions of Rule 4 satisfied)

#### Step 3: GAV

> GAV = Higher of ER and AR

### Definitions

1. Municipal Value: Rent as per records of local authority.

2. Fair Rent: Rent of similar property in same locality.

3. Standard Rent: Maximum legally recoverable rent under Rent Control Act.

### Important Timing Rule

MV, FR, SR → always taken for the full 12 months of the PY.
Actual Rent → taken only for the actually let-out period (whether received or receivable).

### Unrealised Rent — Conditions (Rule 4)

Unrealised rent can be deducted from actual rent only if all conditions are satisfied (genuine tenant, vacated/legal action taken, etc.).

Worked example

### Example 1

Example 1: MV ₹ 1,80,000; FR ₹ 2,00,000; SR ₹ 1,90,000; Actual Rent ₹ 2,40,000 (let out full year, no unrealised rent).

Step 1: Higher of MV & FR = ₹ 2,00,000; Lower of (2,00,000 and SR 1,90,000) = ₹ 1,90,000 → ER = ₹ 1,90,000

Step 2: AR = ₹ 2,40,000

Step 3: GAV = Higher = ₹ 2,40,000

### Example 2

Example 2 (Vacancy): MV ₹ 2,40,000; FR ₹ 2,40,000; SR ₹ NA; Property let out for 8 months @ ₹ 24,000 p.m.; Vacant for 4 months.

ER = ₹ 2,40,000 (no SR)

AR for actual let-out period = 24,000 × 8 = ₹ 1,92,000

GAV typically = Higher of ER and AR, but when actual rent is less than ER ONLY due to vacancy, GAV = Actual Rent (special vacancy rule under Sec 23(1)(c)).

⚠️ Common exam mistakes

Using actual let-out period for MV/FR/SR — these are always annualized to 12 months.
Forgetting Standard Rent caps the expected rent (only when SR exists).
Deducting unrealised rent without verifying Rule 4 conditions.
Confusing 'Expected Rent' with 'Reasonable Expected Rent' — many texts use the latter; both refer to the same concept.
Forgetting the vacancy rule of Sec 23(1)(c) — when AR < ER solely due to vacancy, GAV = AR (not ER).

Reference:

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Gross Annual Value (GAV) — Section 23

Worked example

⚠️ Common exam mistakes