Elements of Direct Taxes - Unit 3 PDF

# Elements of Direct Taxes - Unit 3 ## Unit 3: Chapter 1 - Income From House Property **Note**: The study material is not exhaustive. These are only guidelines; students are requested to refer the reference books. ### What is the Basis of Charge [Sec. 22] Income is taxable under the head "Income...

# Elements of Direct Taxes - Unit 3 ## Unit 3: Chapter 1 - Income From House Property **Note**: The study material is not exhaustive. These are only guidelines; students are requested to refer the reference books. ### What is the Basis of Charge [Sec. 22] Income is taxable under the head "Income from house property" if the following three conditions are satisfied: * **Condition 1**: The property should consist of any buildings or lands appurtenant thereto. * **Condition 2**: The assessee should be the owner of the property. * **Condition 3**: The property should not be used by the owner for the purpose of any business or profession carried on by him, the profits of which are chargeable to income-tax. Unless all the aforesaid conditions are satisfied, property income cannot be charged to tax under the head "Income from house property." To put it differently, if all the aforesaid conditions are satisfied, property income is taxable under Section 22 under the head "Income from house property." It makes no difference if the assessee is a company that has been incorporated with the object of buying and developing landed properties. ### Provisions Illustrated The following illustrations are given to have a better understanding: * **X owns a building. It is given on rent. **Income of the property is taxable under the head "Income from house property," as the above-noted three conditions are satisfied. * **Y owns a building. It is used by him for carrying on a business, or he uses the building as his office/factory/godown.** In this case, no income is taxable under the head "Income from house property," as Condition 3 is not satisfied. ### Property Consisting of Any Buildings or Lands Appurtenant Thereto The property should consist of any buildings or land appurtenant thereto. Rental income of a vacant plot (not appurtenant to a building) is not chargeable to tax under the head "Income from house property" but is taxable either under the head "Profits and gains of business or profession" or under the head "Income from other sources," as the case may be. ### Building The word "building" is wide enough to include residential houses (whether let out or self-occupied), buildings let out for office use, or for storage or for use as a factory. Even music halls, dance halls, lecture halls, and other public auditoriums are "buildings." ### Land Appurtenant Thereto The appurtenant lands in respect of a building may be in the form of approach roads to and from public streets, compounds, courtyards, backyards, playgrounds, etc. It also includes car parking spaces, roads connecting one department with another department, playgrounds for the benefits of employees, etc. ### Assessee Should Be Owner Of The Property Income is taxable under the head, "Income from house property" only if the assessee is the owner of a house property: The word "owner" includes a legal owner as well as a deemed owner. For the purpose of Section 22, "owner" may be an individual, HUF firm, company, co-operative society or association of persons, etc. ### Annual Value Of Property Annual value of property is assessed to tax under Section 22 in the hands of the owner even if he is not in receipt of income. It is not necessary that ownership should extend to the site on which the building stands as well as the superstructure. ### Income From Subletting Is Not Taxable Under Section 22: Income Income from subletting is not taxable as income from house property. ### Provisions Illustrated * **X owns a house property. He lets it out to Y for 3 years (rent being Rs. 10,000 per month). Y sublets it to Z on monthly rent of Rs. 40,000.** The rental income of X is taxable under the head "Income from house property." Since Y is not the owner of the house, his income is not taxable as under the head "Income from house property" but is taxable as business income under Section 28 or as income from other sources under Section 56. ### Deemed Owner Besides the legal owner, Section 27 provides that the following persons are to be treated as deemed owner of house property for the purpose of charging tax on annual value under the head "Income from house property": ### Transfer To Spouse Or Minor Child If an individual transfers a house property without adequate consideration to his/her spouse or his/her minor child, the transferor is deemed as owner of the property. This rule is, however, not applicable if an individual transfers a house property to his/her spouse under an agreement to live apart or to his or her minor married daughter. ### Provisions Illustrated The following illustrations are given to have a better understanding: 1. **X, an individual, owns a house property. On April 1, 2019, he transfers the property without any consideration to his wife.** Rental income is received by Mrs. X after April 1, 2019. However, for the purpose of charging tax on rental income, X will be deemed as "owner" of the property. Consequently, income would be taxable in the hands of X. 2. **Y gifts Rs. 10,00,000 to Mrs. Y. Mrs. Y purchases a house property out of the gifted money.** In this case, the aforesaid provisions are not applicable, as Y has transferred a sum of money to his wife who has purchased a property out of the gifted amount (he has not transferred a house property). Consequently, Y will not be deemed as "owner" of the property. In such a case, the income of the property would be computed in the hands of Mrs. Y (as she is the owner of the property) and the income so calculated will be included in the income of Y under the provisions of Section 64(1). ### Holder Of Impartible Estate The holder of an impartiable estate is deemed as the owner of the property. ### Provisions Illustrated X is one of the ex-Rulers of a former princely state. He has divided all his properties amongst his three sons. However, he could not transfer a building which is occupied by a temple and which is given, as per family convention, to his eldest son. All three brothers along with other family members have the right to enjoy the benefit of the property. Property is given to the eldest son as it cannot be divided amongst the three brothers as per the family convention. The eldest son is not the beneficial owner of the property. In other words, he holds the property as a trustee on behalf of his younger brothers. For the purpose of Section 22, the eldest son, as holder of "impartible estate," is deemed as "owner" of the property. ### Property Held By A Member Of Co-operative Society/Company/AOP A member of a co-operative society, company or other association of persons to whom a building (or a part thereof) is allotted or leased under the house building scheme of the society, company or association, is treated as deemed owner of such property. ### Provisions Illustrated A flat is allotted by a co-operative group housing society to X, one of its members under the house building scheme of the society. X is deemed as "owner" of the property for the purpose of Section 22 (although under the general law the property is owned by the co-operative society). ### A Person Who Has Acquired A Property Under A Power Of Attorney Transaction If a person has acquired a property under a "power of attorney transaction" by satisfying the conditions of Section 53A of the Transfer of Property Act, he is deemed as the owner of the property, although he may not be the "registered owner" of the property. ### Section 53A Of The Transfer Of Property Act Requirements * **Condition 1**: There is an agreement in writing between the purchaser and the seller. * **Condition 2**: The purchaser has paid the consideration or he is ready to pay the consideration (if there is no consideration as in the case of a gift, then Section 53A of the Transfer of Property Act is not applicable). * **Condition 3**: The purchaser has taken the possession of the property. If the aforesaid three conditions are satisfied, the purchaser becomes the deemed "owner" of the property for the purpose of income-tax, even if he is not the registered owner of the property. ### Provisions Illustrated X enters into a written agreement to purchase a property from Y for Rs. 25,00,000. He has paid the consideration and taken possession of the property. The sale deed is yet to be registered. He becomes deemed "owner" of the property for the purpose of paying tax on rental income, although he is not the registered owner of the property. ### A Person Who Has Acquired A Right In A Building Under Section 269UA(f) If a person acquires a right in a building by virtue of a transaction which is referred to in Section 269UA(f), then he is deemed as owner of the property. Broadly speaking, Section 269UA(f) covers the case of taking a property on lease for a term of not less than 12 years (whether fixed originally or there is a provision for extension of term and the aggregate period is not less than 12 years). This provision of deemed ownership does not cover any right by way of a lease from month to month or for a period not exceeding one year. ### Provisions Illustrated 1. **X owns a property. It is given on lease for a period of 12 years to Y, lease rent being Rs. 40,000 per month. **As the period of lease is not less than 12 years, Y becomes deemed "owner" of the property. 2. **A owns a property. It is given on lease for a period of 6 years to B, lease rent being Rs. 20,000 per month. B has a right to get renewal of lease for further period of 6 years after the expiry of lease.** In this case, the aggregate period of lease is not less than 12 years. Therefore, B is deemed as "owner" of the property. ### Property Should Not Be Occupied By The Owner For His Own Business Or Profession Annual value of a house property is not chargeable to tax under the head "Income from house property" if the owner uses the property for the purposes of carrying on his business or profession (whose income is chargeable to tax). The reason for this exclusion seems to be that notional rent of property is not allowable as a permissible deduction while computing business income if a person carries on business or profession in his own house property. ***A Few Examples***: 1. **X owns a property. He uses the property as his office, factory or godown. **As the property is used for the purpose of carrying on his own business or profession, nothing is taxable under Section 22. 2. **X Ltd. is a manufacturing company. The factory of the company is situated in Andhra Pradesh.** Within the factory campus, there is a residential colony having 80 quarters for workers. These quarters are given to the workers for residential purposes. A nominal rent of Rs. 100 per month is recovered from the workers. As the purpose of letting out of residential quarters is to run the business smoothly, the residential quarters will be treated as house property used by the assessee for the purpose of its business. Accordingly, annual value thereof is not chargeable under Section 22. Recovery of rent of Rs. 100 per month from the workers will be taken as business receipt. 3. **Y Ltd. makes available a few rooms in its factory on nominal rent to the Government for locating a branch of nationalized bank, post office and central excise office for carrying on its business efficiently and smoothly.** Nothing is taxable under Section 22. Rent collected, being incidental to the business of Y Ltd., is assessable as business income under Section 28). ### Applicability Of Section 22 In Certain Typical Cases: Apart from what is discussed earlier, the following points merit consideration while understanding implications and scope of Section 22: ### House Property In A Foreign Country A resident assessee is taxable under Section 22 in respect of annual value of a property situated in a foreign country. A resident but not ordinarily resident or a non-resident is, however, chargeable under Section 22 in respect of income of a house property situated abroad, provided income is received in India during the previous year. If tax incidence is attracted under Section 22 in respect of a house property situated abroad, annual value will be computed as if property is situated in India. ### Disputed Ownership If the title of ownership of a house property is under dispute in a court of law, the decision about who is owner rests with the Income-tax Department. Thus, mere existence of dispute as to title cannot hold up an assessment even if a suit has been filed. Generally, the person who is in receipt of income or the person who enjoys the possession of a house property as owner, though his claim is disputed, is assessable to tax under Section 22. ### Property Held As Stock-In-Trade As a specific head of charge is provided for income from house property, annual value of house property cannot be brought to tax under any other head of income. If the three conditions given by Section 22 are satisfied, the rental income of a house property is taxable under the head "Income from house property." This rule is applicable even if the property is held by the owner as his stock-in-trade. ### Treatment Of Composite Rent Apart from recovering rent of the building, in some cases, the owner gets rent of other assets (like furniture) or he charges for different services provided in the building (for instance, charges for lift, security, air conditioning, etc.). The amount so recovered is known as "composite rent." The tax treatment of the composite rent is as follows: ### Where Composite Rent Includes Rent Of Building And Charges For Different Services (Like Lift, Air Conditioning) If the owner of a house property gets a composite rent for the property as well as for services rendered to the tenants, composite rent is to be split up and the sum which is attributable to the use of property is to be assessed in the form of annual value under Section 22. The amount which relates to rendition of the services (such as electricity supply, provision of lifts, supply of water, arrangement for scavenging, watch and ward facilities, etc.) is charged to tax under the head "Profits and gains of business or profession," or under the head "Income from other sources." ### Provisions Illustrated 1. **X owns a property. It is given on rent to Y. Y annually pays Rs. 1,00,000 as rent of the property and Rs. 20,000 for different services like lift, security, air-conditioning, etc.** In this case, Rs. 20,000 is not taxable in the hands of X as income from house property. Rs. 20,000 would be taxed in the hands of X after deducting his actual expenditure for providing different services (lift, security, air-conditioning, etc.) as income from other sources or as business income. 2. **A owns a property. It is given on rent to B. B annually pays Rs. 1,50,000 as rent of the building as well as the charges for different services (like lift, security, etc.) provided by A.** In this case, one has to split up the annual payment of Rs. 1,50,000 into rent of the building and charges for different services. The amount which relates to rendition of the services (after deducting actual expenditure) is taxable either as business income or as income from other sources. The sum which is attributable to the use of the property is to be assessed in the form of annual value under Section 22 under the head "Income from house property." This rule is applicable even if it is difficult to split up the annual payment of Rs. 1,50,000. In other words, in such a case, it is not legally correct to assess the entire amount of Rs. 1,50,000 (less expenditure) as business income or as income from other sources. ### Where Composite Rent Is Rent Of Letting Out Of Building And Letting Out Of Other Assets (Like Furniture) And The Two Lettings Are Not Separable If there is letting of machinery, plant and furniture and also letting of the building and the two lettings are inseparable (in the sense that letting of one is not acceptable to the other party without letting out of the other), then such income is taxable either as business income or income from other sources. This rule is applicable even if the sum receivable for the two lettings is fixed separately. ### Provisions Illustrated 1. **X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 5,00,000 (it includes rent of building and rent of air-conditioner and furniture)**. In this case, letting of lecture hall is not separable from the letting of air-conditioner/furniture. This income (after excluding expenditure) is taxable as business income or as income from other sources. 2. **X owns an air-conditioned furnished lecture hall. It is let out, annual rent being Rs. 3,00,000 for building and Rs. 2,00,000 as rent of air-conditioner and furniture. In this case, letting of lecture hall is not separable from the letting of air-conditioner/furniture.** This rule is applicable even if from the agreement one can find out rent of building and rent of air-conditioner/furniture separately. ### Where Composite Rent Is Rent Of Letting Out Of Building And Letting Out Of Other Assets And The Two Lettings Are Separable If there is letting of building and letting out of other assets and the two lettings are separable (in the sense that letting of one is generally acceptable without letting out of the other; for instance, letting out of a building along with a car), then the income from letting out of building is taxable under the head "Income from house property" and income from letting out of other assets is taxable either as business income or income from other sources. This rule is applicable even if the assessee receives composite rent from his tenant for two lettings. ### Provisions Illustrated 1. **X gets Rs. 20,000 per month as rent from Y for letting out of a building and a car (the two lettings are separable in the sense that Y was given an option to take on rent either the building (at Rs. 16,000) or the car (at Rs. 4,000) or both.** The rent of the building is taxable under the head "Income from house property" and the rent of the car is taxable either as business income or income from other sources. ### When A House Property Is Owned By Co-owners [Sec. 26] If a house property is owned by two or more persons, then such persons are known as co-owners. If respective shares of co-owners are definite and ascertainable, the share of each such person (in the computed income of property) shall be included in his total income. It may be noted that co-owners are not taxable as an association of persons. ### Principle Of Mutuality And Section 22 Tax levied under Section 22 is tax on income from house property and it is not a tax on house property. A club owns a house property and it provides recreational and refreshment facilities exclusively to its members and their guests. Its facilities are not available to non-members. The club is run on "no profit no loss" basis. The members pay for all their expenses and are not entitled to any share in the profit. Surplus, if any, is used for maintenance and development of the club. The business of the club is governed by the principle of mutuality. It is not only the surplus from the activities of the business of the club that is excluded from the levy of income-tax, even the annual value of the club's house property as contemplated in Section 22 will be outside the purview of the levy of income-tax-Chelmsford Club v. CIT [2000] 109 Taxman 215 (SC). ### What Is The Basis Of Computing Income From A Let Out House Property Income from a let out house property is determined as under: | | Rs. | | :------------------------ | :----- | | Gross annual value (see para 68.1) | XXXXX | | Less: Municipal taxes (see para 68.2) | XXXXX | | Net annual value | XXXXX | | Less: Deduction under Section 24 (see para 68.3) | | | - Standard deduction (see para 68.3-1) | XXXXX | | - Interest on borrowed capital (see para 68.3-2) | XXXXX | | **Income from house property** | XXXXX | ### 68.1 Gross Annual Value [Sec. 23(1)] Tax under the head "Income from house property" is not a tax upon the rent of a property; it is tax on the inherent capacity of a building to yield income. The standard selected as a measure of the income to be taxed is "annual value." Gross annual value is determined as follows: **Step I**: Find out reasonable expected rent of the property (see para 68.1-1) **Step II**: Find out the rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy (see para 68.1-2) **Step III**: Find out which one is higher-amount computed in Step I or Step II. **Step IV**: Find out loss because of vacancy **Step V**: Step III minus Step IV is gross annual value (see para 68.1-3) ### Where the House Property Is Held As Stock-In-Trade and It Is Not Let Out During the Whole Or Any Part Of The Previous Year The annual value of such property (or part thereof) shall be taken as nil. However, this concession is available only for a period up to 2 years from the end of the financial year in which the certificate of completion of construction of the property is obtained from the competent authority. ### 68.1-1 Step I - Find Out Reasonable Expected Rent [Sec. 23(1)(a)] Reasonable expected rent is the sum for which the property might reasonably be expected to be let out from year to year. In determining reasonable rent, several factors have to be taken into consideration, such as, location of the property, annual ratable value of the property fixed by municipalities, rents of similar properties in the neighbourhood, rent which the property is likely to fetch having regard to demand and supply, cost of construction of the property and nature and history of the property. These factors play a vital role in determining reasonable expected rent of a house property. In a majority of cases, however, expected rent can be determined by taking into consideration the following factors: 1. Municipal valuation of the property (see para 68.1-1a) 2. Fair rent of the property (see para 68.1-1b) 3. Standard rent of the property (see para 68.1-1c) (If however, a property is covered by a Rent Control Act, then the amount so computed cannot exceed the "standard rent" determinable under the Rent Control Act). ### 68.1-1a Municipal Valuation For collecting municipal taxes, local authorities make a periodical survey of all buildings in their jurisdiction. Such valuation may be taken as a strong evidence representing the earning capacity of a building. It cannot, however, be considered to be a conclusive evidence.. In some big cities (like Delhi, Mumbai, Chennai, and Kolkata), municipal authorities determine net ratable value after deducting 10 per cent of the gross ratable value on account of repairs and an allowance for service taxes (such as sewerage tax and water tax). The net municipal valuation, therefore, requires an adjustment for determining expected rent for income-tax purposes. ### 68.1-1b Fair Rent Of The Property Fair rent of the property can be determined on the basis of a rent fetched by a similar property in the same or similar locality. Though two properties cannot be alike in every respect, the evidence afforded by transactions of other parties in the matter of other properties in the neighbourhood, more or less comparable with the property in question, is relevant in arriving at reasonable expected rent. ### 68.1-1c Standard Rent Under Rent Control Acts Standard rent is the maximum rent which a person can legally recover from his tenant under a Rent Control Act. The Supreme Court has observed in a few cases that a landlord cannot reasonably expect to receive from a hypothetical tenant anything more than the standard rent under the Rent Control Act. This rule is applicable even if a tenant has lost his right to apply for fixation of the standard rent. This rule is also applicable to the owner himself. In other words, if a property is covered under the Rent Control Act, its reasonable expected rent cannot exceed the standard rent (fixed or determinable) under the Rent Control Act). ### 68.1-1d Provision Illustrated As mentioned earlier, the reasonable expected rent is computed on the basis of the three factors, namely: 1. Municipal valuation (MV), 2. Fair rent of the property (FR), and 3. Standard rent of the property (SR). The higher of (MV) and (FR), subject to the maximum of (SR) is reasonable expected rent. The example below illustrates the aforesaid propositions: | | A | B | C | D | E | | :---------------- | :-- | :--- | :--- | :--- | :---- | | Municipal value (MV) | 40 | 40 | 40 | 40 | 40 | | Fair rent (FR) | 46 | 46 | 46 | 48 | 51 | | Standard rent (SR) | NA | 45 | 35 | 45 | 63 | **Reasonable expected rent under Step I (MV or FR whichever is higher, subject to the maximum of SR):** | A | B | C | D | E | | --- | --- | --- | --- | --- | | 46 | 45 | 35 | 45 | 51** | *Reasonable expected rent cannot exceed the amount of standard rent. Reasonable expected rent can, however, be lower than standard rent-see Dr. Balbir Singh v. MCD [1985] 152 ITR 388 (SC). In other words, standard rent is the maximum amount of reasonable expected rent. In the case of E, Rs. 51,000 (being higher of municipal valuation and fair rent) is the reasonable expected rent. Since this amount is lower than the maximum ceiling (i.e., standard rent: Rs. 63,000), it is taken as reasonable expected rent. ### 68.1-2 Step II - Find Out Rent Actually Received Or Receivable For the purpose of Step II, rent received or receivable shall be calculated as follows: **Rent of the previous year (or that part of the previous year) for which the property is available for letting out:** XXXXX **Less: Unrealised rent if a few conditions are satisfied (see para 68.1-2a):** XXXXX **Rent received/receivable before deducting loss due to vacancy:** XXXXX The following points should be noted: 1. **Loss due to vacancy shall not be deducted from the computation of rent received/receivable as given above. It shall be deducted under Step IV**. 2. **Sometimes a tenant pays a composite rent of property as well as certain benefits provided by the landlord. To determine rent received/receivable, composite rent must be disintegrated and it is only that part of it attributable to the let out of property which would form the basis for the aforesaid calculation.** 3. **Occupier’s (i.e., tenant’s) share of municipal tax realized from the tenant cannot be added to actual rent received/receivable, as it is the occupier’s duty to pay municipal tax-CIT v. Gillanders Arbuthnot & Co. Ltd. [1983] 142 ITR 598 (Cal).** 4. **If the tenant has undertaken to bear the cost of repairs, the amount spent by the tenant cannot be added to rent received or receivable-CIT v. Parbutty Churn Law [1965] 57 ITR 609 (Cal).** 5. **A non-refundable deposit will be included in rent received or receivable on a pro rata basis.** 6. **A refundable deposit cannot be included in rent received or receivable.** 7. **Advance rent cannot be rent received/receivable of the year of receipt** 8. **Commission paid by the owner of a property to a broker for rental income is not deductible.** 9. **If maintenance charges are recovered from the tenant by a service provider (and not by the landlord), such maintenance charges cannot be added to actual rent received/receivable. Conversely, if maintenance charges are collected by the landlord, it shall be excluded from actual rent received/receivable in order to calculate rent of the property.** ### 68.1-2a When Unrealized Rent Shall Be Excluded [Expln. To Sec. 23(1)] Unrealised rent (which the owner could not realise) shall be excluded from rent received/receivable only if the following conditions are satisfied: * The tenancy is bona fide * The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property. * The defaulting tenant is not in occupation of any other property of the assessee. * The assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be useless. ### _68.1-3 Computation With the Help Of Illustrations_ To have a better understanding, the following problems are given: ### 68.1-3P1 X, Y, Z, A and B separately own the following properties: | | H1 | H2 | H3 | H4 | H5 | | :----- | :---- | :---- | :---- | :---- | :---- | | Municipal value (MV) | 105 | 105 | 105 | 105 | 105 | | Fair rent (FR) | 107 | 107 | 107 | 107 | 107 | | Standard rent under the Rent Control Act (SR) | NA | 88 | 88 | 135 | 135 | | Actual rent | 103 | 112 | 86 | 114 | 97 | | Unrealized rent (conditions mentioned in para 68.1-2a are satisfied) | 1 | 2 | 1 | 2 | 1 | | Period of the previous year (in months) | 12 | 12 | 12 | 12 | 12 | | Period during which the property remains vacant | NIL | NIL | NIL | NIL | NIL | Compute the gross annual value for the assessment year 2024-25. **Solution**: In this case, the gross annual value shall be determined as follows: ### Computation of Gross Annual Value | | X | Y | Z | A | B | | :----- | :--- | :---- | :--- | :---- | :---- | | **Step I - Reasonable expected rent of the property (MV or FR, whichever is higher, but subject to the maximum of SR)** | 107 | 88 | 88 | 107 | 107 | | **Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy** | 102 | 110 | 85 | 112 | 96 | | **Step IV - Loss due to vacancy** | NIL | NIL | NIL | NIL | NIL | | **Step III - Amount computed in Step I or Step II, whichever is higher** | 107 | 110 | 88 | 112 | 107 | | **Step V - Gross annual value is Step III minus Step IV** | 107 | 110 | 88 | 112 | 107 | ### 68.1-3P2 X owns a house property (municipal valuation: Rs. 1,45,000, fair rent: Rs. 1,36,000, standard rent: Rs. 1,24,000). It is let out throughout the previous year (rent being Rs. 8,000 per month up to November 15, 2023 and Rs. 14,000 per month thereafter). X transfers the property to Y on January 31, 2024. Find out the gross annual value of the property in the hands of X for the assessment year 2024-25. **Solution**: Computation of gross annual value | | Rs. | | :----------- | :------- | | Municipal value from April 1, 2023 to January 31, 2024 (Rs. 1,45,000 ÷ 12 × 10) (MV) | 1,20,833 | | Fair rent from April 1, 2023 to January 31, 2024 (Rs. 1,36,000 ÷ 12 × 10) (FR) | 1,13,333 | | Standard rent from April 1, 2023 to January 31, 2024 (Rs. 1,24,000 ÷ 12 × 10) (SR) | 1,03,333 | | Step I - Reasonable expected rent of the property (MV or FR, whichever is higher, but subject to the maximum of SR) | 1,03,333 | | Step II - Rent received/receivable after deducting unrealized rent but before adjusting loss due to vacancy (Rs. 8,000 × 7½ + Rs. 14,000 × 22) | 95,000 | | Step III - Amount computed in Step I or Step II, whichever is higher | 1,03,333 | ### 68.1-3P3 Find out the gross annual value in the case of the following properties let out throughout the previous year for the assessment year 2024-25: | | X | Y | Z | A | B | | :----- | :---- | :---- | :-- | :---- | :---- | | Municipal value (MV) | 60 | 60 | 60 | 112 | 112 | | Fair rent (FR) | 68 | 68 | 68 | 117 | 117 | | Standard rent under Rent Control Act (SR) | 62 | 62 | 70 | 115 | 115 | | Annual rent | 67 | 67 | 73 | 121 | 110 | | Unrealized rent of the previous year 2019-20 (which could not be realised and conditions of rule 4 are satisfied [see para 68.1-2a]) | 2 | 6 | 5 | 50 | 40 | | Loss due to vacancy | 1 | 1 | 1 | 1 | 1 | **Solution:** | | X | Y | Z | A | B | | :----- | :-: | :-: | :-: | :-: | :-: | | **Step I - Reasonable expected rent of the property (MV or FR, whichever is higher, but subject to the maximum of SR)** | 62 | 62 | 68 | 115 | 115 | | **Step II - Rent received/receivable after deducting un