28 August 2012
5.5 DETERMINATION OF ANNUAL VALUE [SECTION 23] This involves three steps : Step 1 - Determination of Gross Annual Value (GAV). Step 2 – From the gross annual value computed in step 1, deduct municipal tax paid by the owner during the previous year. Step 3 – The balance will be the Net Annual Value (NAV), which as per the Income-tax Act is the annual value.
(i) Determination of annual value for different types of house properties
(3) In case of self-occupied property or unoccupied property [Section 23(2)] (a) Where the property is self-occupied for own residence or unoccupied throughout the previous year, its Annual Value will be Nil, provided no other benefit is derived by the owner from such property. (b) The benefit of exemption of one self-occupied house is available only to an individual/HUF. (c) The expression “Unoccupied property” refers to a property which cannot be occupied by the owner by reason of his employment, business or profession at a different place and he resides at such other place in a building not belonging to him. (d) No deduction for municipal taxes is allowed in respect of such property.
(iii) Property taxes (Municipal taxes) (1) Property taxes are allowable as deduction from the GAV subject to the following two conditions: (a) It should be borne by the assessee (owner); and (b) It should be actually paid during the previous year. (2) If property taxes levied by a local authority for a particular previous year is not paid during that year, no deduction shall be allowed in the computation of income from house property for that year. (3) However, if in any subsequent year the arrears are paid, then the amount so paid is allowed as deduction in computation of income from house property for that year. (4) Thus, we find that irrespective of the previous year in which the liability to pay such taxes arise according to the method of accounting regularly employed by the owner, the deduction in respect of such taxes will be allowed only in the year of actual payment. (5) In case of property situated outside India, taxes levied by local authority of the country in which the property is situated is deductible. [CIT v. R. Venugopala Reddiar (1965) 58 ITR 439 (Mad).]
Annual value under section 23(2) is NIL for Self Occupied property, hence deduction for Municipal Taxes is not allowed.
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