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Microlesson · 5-min read

Treatment of Vacancy

# Treatment of Vacancy

Where a let-out property remains vacant for part of the year, special rules apply to GAV computation.

## The Vacancy Benefit Rule

### Case 1 — Vacancy Benefit Available

Condition: Normally (without vacancy) Actual Rent > Expected Rent, BUT due to vacancy, Actual Rent (post-vacancy) < Expected Rent.

Treatment: GAV = Actual Rent received (after vacancy reduction). The Expected Rent is NOT taken — the assessee gets the benefit of vacancy.

### Case 2 — No Vacancy Benefit

Condition: Even without vacancy, Expected Rent > Actual Rent (i.e., rent was below expected level anyway).

Treatment: GAV = Expected Rent. No vacancy adjustment — assessee was already getting below-market rent.

## Combined with Unrealised Rent

Where both vacancy and unrealised rent exist (Rule 4 satisfied):

```

Actual Rent (for comparison) = Rent Received/Receivable (-) UR

Then apply vacancy rule.

```

## Decision Table

ScenarioPre-Vacancy AR vs ERPost-Vacancy AR vs ERGAV
Vacancy benefitAR > ERAR < ERPost-vacancy AR
No benefitER > ARER > ARER
Full year letAR ≥ ERAR
Full year letER > ARER

Worked example

### Example 1

Vacancy Benefit Example: Expected Rent = ₹1,80,000; Actual Rent = ₹20,000 p.m.; vacant for 4 months.

  • Annual Rent (if fully let) = 20,000 × 12 = ₹2,40,000 (> ER ₹1,80,000)
  • Post-vacancy AR = 20,000 × 8 = ₹1,60,000
  • ER (1,80,000) > Post-vacancy AR (1,60,000) → Vacancy benefit applies
  • GAV = ₹1,60,000

### Example 2

No Vacancy Benefit Example: Expected Rent = ₹3,00,000; Actual Rent = ₹20,000 p.m.; vacant for 2 months.

  • Annual rent (fully let) = 2,40,000; ER (3,00,000) > Annual AR (2,40,000) — already below expected
  • No vacancy benefit — GAV = Expected Rent = ₹3,00,000 (Section 23(1)(a))

⚠️ Common exam mistakes

  • Granting vacancy benefit when actual rent (full year basis) was already below expected rent.
  • Not subtracting unrealised rent before applying the vacancy comparison.
  • Treating partial vacancy under Section 23(1)(c) without checking the comparison logic.
  • Confusing 'partly SOP, partly LOP (time-based)' with vacancy.
Bare-Act text Section 23(1)(c) · Income-tax Act, 1961 · click to expand
Section 23(1)(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 shall be the annual value.
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