Taxation · Income from House Property

Annual Value and Determination of Gross Annual Value

Q: What is the difference between expected rent and actual rent?

Expected rent is a notional figure built from municipal value, fair rent and standard rent. Actual rent is the rent you receive or are entitled to receive for the tax year, after excluding unrealised rent. GAV is normally the higher of the two.

Q: When can I take actual rent as GAV even if it is lower than expected rent?

Only when the property was vacant for part of the year and that vacancy is the reason actual rent is below expected rent. A lower rent agreed with the tenant does not qualify.

Q: How is unrealised rent treated in GAV?

If the conditions are met, deduct the unrealised rent from the rent receivable to get actual rent. Then compare actual rent with expected rent and apply the vacancy test if it arises. Do not deduct unrealised rent from GAV after it is fixed. If the conditions are not met, no deduction is made.

Q: Does standard rent always apply?

No. It applies only to properties covered by the Rent Control law where a standard rent is fixed. If none exists, expected rent is just the higher of municipal value and fair rent.

Updated 4 October 2026 · Fact-checked

Gross annual value is the rent a property can reasonably earn in a tax year. Expected rent is the higher of municipal value and fair rent, capped at standard rent. Actual rent is rent receivable less unrealised rent. GAV is the higher of the two, unless vacancy makes actual rent lower; then it is actual rent.

Understand Annual Value and Determination of Gross Annual Value

Income from house property is not taxed on the rent you actually collect. It is taxed on the annual value of the property, which is the sum for which the property might reasonably be expected to let from year to year. The first figure you need is the gross annual value (GAV). Every deduction in this head starts from it.

The law gives you three yardsticks for what a property could earn: municipal value (the value fixed by the local authority for levying property tax), fair rent (what similar properties in the same locality fetch) and standard rent (the maximum rent fixed under the Rent Control law, where that law applies). Together they give the expected rent. Take the higher of municipal value and fair rent. If a standard rent exists, expected rent cannot go above it.

Next you work out actual rent. Start with the rent received or receivable for the tax year. Rent for a period of vacancy is not receivable. Then deduct any unrealised rent (explained below). The result is the actual rent. Normally GAV is the higher of expected rent and actual rent. This stops an owner from showing a low rent to a relative and lowering tax.

There is one relief. If the property was vacant for part of the year and, because of that vacancy, the actual rent is less than expected rent, then GAV is the actual rent. The relief applies only to vacancy. A low rent fixed by agreement is not a vacancy loss.

Unrealised rent is rent you could not collect from the tenant. It is not deducted from GAV. The law excludes it from actual rent. So deduct it from the rent receivable, if the prescribed conditions are met, before you compare with expected rent and before you apply the vacancy test. The conditions are that the tenancy is bona fide, the tenant has vacated or steps have been taken to make him vacate, the tenant is in default and is not likely to pay, and you have taken reasonable steps to recover the rent, or have satisfied yourself that legal action would be useless. Check the exact wording in your study material.

Key rules to remember

Expected rent (step 1): Higher of municipal value and fair rent; This is the starting point. It does not use actual rent at all.
Expected rent (step 2: standard rent cap): Expected rent = lower of [higher of municipal value and fair rent] and standard rent; Apply only if the property is covered by the Rent Control law and a standard rent exists.
Rent receivable: Monthly rent × months for which rent is receivable; Rent receivable is on due basis. Rent for the period of vacancy is not receivable. Unrealised rent is deducted in the next step.
Unrealised rent: Actual rent = rent receivable − unrealised rent (if conditions are met); Deduct it from rent receivable before comparing with expected rent and before the vacancy test. Do not deduct it from GAV afterwards. Deduct only if the conditions are satisfied.
GAV: no vacancy: GAV = higher of expected rent and actual rent; A low rent without vacancy does not reduce GAV below expected rent.
GAV: vacancy: If actual rent < expected rent because of vacancy, GAV = actual rent; If vacancy exists but actual rent is still at or above expected rent, GAV is the actual rent anyway, being the higher figure.
Annual value: Annual value = GAV − municipal taxes paid by the owner during the tax year; Municipal tax is deducted only if the owner paid it in that tax year. Details are in the deductions topic.

How to solve Annual Value and Determination of Gross Annual Value questions

Use the same order every time. It handles let-out, part-vacant and defaulting-tenant questions. Unrealised rent comes off the rent receivable, before you compare.

1List the data: municipal value, fair rent, standard rent (if any), monthly rent, months let, months vacant and unrealised rent.
2Find the higher of municipal value and fair rent.
3If standard rent is given, cap the figure from step 2 at standard rent. The result is the expected rent for the full year.
4Work out rent receivable: monthly rent × months for which rent is receivable. Do not include vacant months.
5Deduct unrealised rent from the rent receivable, only if the question says the conditions are satisfied. The result is the actual rent.
6If the property had no vacancy, GAV is the higher of expected rent and actual rent.
7If the property had vacancy, check whether actual rent is below expected rent because of it. If yes, GAV is the actual rent. If not, GAV is the higher figure.
8Write the final figure with a one-line reason, then move to municipal taxes and other deductions.

Quickest way: Four-line GAV check

When to use it: Use it for MCQs and for the first working note of a long computation.

Line 1: Expected rent = max(MV, FR), then min with SR if SR is given.
Line 2: Rent receivable = rent × months receivable.
Line 3: Deduct unrealised rent (if conditions are met) from line 2 to get actual rent. If a vacancy is mentioned and actual rent is below line 1, GAV = actual rent. Otherwise GAV = higher of line 1 and actual rent.
In MCQs, spot the trap first: is the low rent due to vacancy or only to agreement? Is standard rent lower than fair rent? If standard rent is given, it usually decides expected rent.
In written answers, show each line as a separate working note. You earn step marks even if one figure goes wrong.

Common mistakes in Annual Value and Determination of Gross Annual Value

Ignoring standard rent when it is lower than the higher of municipal value and fair rent.
Students stop at the higher of municipal value and fair rent.
Fix: Whenever standard rent is given, cap the expected rent at it before comparing with actual rent.
Treating a low agreed rent as vacancy loss and taking actual rent as GAV.
The vacancy relief is remembered as 'actual rent if less'.
Fix: Allow actual rent as GAV only when the shortfall is caused by vacancy. Otherwise GAV is the higher of expected and actual rent.
Including rent for vacant months in actual rent.
Students multiply rent by 12 out of habit.
Fix: Multiply the monthly rent only by the months for which rent is receivable.
Ignoring unrealised rent in actual rent, or deducting it from GAV after the comparison.
Students treat unrealised rent as a later deduction, like municipal tax, instead of part of finding actual rent.
Fix: Deduct unrealised rent (if the conditions are met) from rent receivable before the comparison with expected rent and before the vacancy test.
Deducting municipal tax that was only due, not paid, or paid by the tenant.
Students mix up GAV with the next step.
Fix: Finish GAV first. Then deduct only municipal taxes actually paid by the owner during the tax year.

Worked examples

Example 1

Meera owns a let-out flat. Municipal value is ₹2,40,000, fair rent is ₹2,70,000 and standard rent under the Rent Control law is ₹2,50,000. It was let for the whole tax year at ₹20,000 per month. Find the GAV.

Show the solution

Higher of municipal value and fair rent = higher of ₹2,40,000 and ₹2,70,000 = ₹2,70,000.
Standard rent is ₹2,50,000, so expected rent = lower of ₹2,70,000 and ₹2,50,000 = ₹2,50,000.
Actual rent = ₹20,000 × 12 = ₹2,40,000. There is no vacancy and no unrealised rent.
GAV = higher of expected rent ₹2,50,000 and actual rent ₹2,40,000 = ₹2,50,000.

Answer: GAV = ₹2,50,000

Example 2

Rohan lets out a shop at ₹30,000 per month. Municipal value is ₹3,00,000 and fair rent is ₹3,24,000. There is no standard rent. The shop was vacant for 2 months and rent for one month, ₹30,000, is unrealised and meets all the conditions for unrealised rent. Find the GAV.

Show the solution

Higher of municipal value and fair rent = higher of ₹3,00,000 and ₹3,24,000 = ₹3,24,000.
There is no standard rent, so expected rent = ₹3,24,000.
Rent receivable = ₹30,000 × 10 months = ₹3,00,000 (the 2 vacant months are excluded).
Deduct unrealised rent ₹30,000 from rent receivable: actual rent = ₹3,00,000 − ₹30,000 = ₹2,70,000.
Actual rent ₹2,70,000 is below expected rent ₹3,24,000 because of vacancy, so GAV = actual rent = ₹2,70,000.

Answer: GAV = ₹2,70,000

Exam tips

Read the question for the word 'vacant'. It tells you whether the vacancy rule is in play.
Always write expected rent as a separate working note. Many marks go to this step.
If standard rent is not mentioned, say 'no standard rent given' and move on. It shows the examiner you considered it.
In MCQs, check whether unrealised rent is stated to meet the conditions. If it is, deduct it from the rent receivable first, then compare the result with expected rent. Do not subtract it from GAV at the end.
Use the tax year and the Income-tax Act, 2025 in your answer, and do not write 'assessment year'.

Practice questions from Income from House Property