Basis of Charge and Different types of Rental Values

Basis of Charge

Section 22 of the Act provides as follows:

“The annual value of property consisting of any buildings or lands appurtenant thereto of which the assessee is the owner, other than such portions of such property as he may occupy for the purposes of any business or profession carried on by him, the profits of which are chargeable to income-tax, shall be chargeable to incometax under the head Income from House Property".

Types of  Rental Values:

Gross annual value shall be higher of

(a) Expected Rent

(b) Actual rent received or receivable.

The higher of Municipal value and fair rental value shall be Expected rent. The expected rent shall not exceed the Standard rent.

Municipal Value: Municipal value is the value determined by the municipal authorities for levying municipal taxes on house property.

Fair rent: Fair rent is the amount which a similar property can fetch in the same or similar locality, if it is let for a year.

Standard Rent: The standard rent is fixed under Rent Control Act. In such a case, the property can not be let for a amount which is higher than the standard rent fixed under the Rent Control Act.

Actual rent received or receivable: Actual rent is rent for let out period. It is the de facto rent (i.e. what should have been the actual rent). For example, if water and electricity bills of tenant are payable by the owner, then de facto rent will be calculated by reducing from the rent received/receivable the amount spent by the owner for those bills. On the other hand, for example, if any obligation of water and electricity bills is met by the tenant, then amount spent by the tenant will be included for the purpose of calculating actual rent received/receivable or de-facto rent. Municipal taxes are to be borne by the occupier who in the case of let out property is the tenant.

Therefore, if such municipal taxes are borne by the tenant, the rent received/receivable should not be increased to calculate the de-facto rent. While computing the net annual value the following deduction are made from the gross annual value :

Municipal Taxes : The taxes including service taxes (fire tax, conservancy tax, education, water tax, etc.) levied by any municipality or local authority in respect of any house property to the extent to which such taxes are borne and paid by the owner, and include enhanced municipal tax finally determined on appeal and payable by assessee.

Reference:
ICSI
ICAI
Income Tax Law & Practice by Gaur & Narang