The notional income of a person derived from house property is taxable under the Income tax act. Property here refers to any building, factory, hall, shop, auditorium and the land attached to the building which can be a compound, garden, parking space, gymkhana or a playground. The taxability is on the potential income that the property can earn and not on the actual rent earnings.
The taxable value is calculated on the annual value of the property (inclusive of the building and the land) which is used by the owner for business/profession.
The tax advisory experts at Ikia Consulting services explains that Gross Annual Value of the property is required, to calculate the annual value of the property, which is higher of
– The reasonable earnings from the property and in cases where there is a fixed income the sum cannot exceed the GAV. If the property has been vacant for a long period of time, then the amount of rent actually received is taken as GAV.
– Where the actual rent received/receivable is more that the GAV, then that amount is taken as the annual value.
The following is excluded from determining GAV
-Municipal tax realized from tenant
-Notional interest on the amount received towards rent/security deposit
-Repairs carried out by tenant
The Annual Value is considered nil in the following cases:
– Self occupied property
-Owner having one residential house and unable to occupy it due to employment
Net Annual Value is arrived at by deducting municipal taxes and unrealized rent. Receipt of any unrealized rent shall be chargeable to tax in the year of receipt.
If the owner has more than one house then the only one can be considered as self-occupied and the others are considered as let out and hence it is advisable to choose a property with less tax liability.