Deemed Rent or Notional Rent and its taxation
What is deemed rent?
If a house property or immovable property is not let out during the year even then its annual rental value shall be charged to tax which is generally termed as taxation of deemed rent or notional rent.
Taxation of house property is not in line with income accrued or received concept as is the case with taxation under other heads of income but under it income is determined on the basis of annual value of house property. It may be said that annual value of house property is income for the purpose of taxation.
Section 22 which provides basis of charge is as under:
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 income-tax under the head “Income from house property.
Annual value of one residential property shall be Nil: As per section 23(2), annual value of one residential property shall be nil if it is self –occupied or remain un-occupied by the owner due to his employment, business or profession carried on at any other place.
- Concept of self occupied property is applicable only in respect of residential property and not for commercial property.
- Exemption in respect of one self-occupied property can be claimed by individual assessee.
What if owner has more than one residential house property or occupies more than one house property: If owner has more than one house property, then he can claim one house property of his choice as self occupied house property and in respect of other, annual value of that house property shall be chargeable to tax.
Even if owner says that his family members reside in both the house property, annual value of house property shall be chargeable to tax.
Annual value shall be determined as if such house property has been let out as per section 23(1).
Determination of Annual value of property which is not let out:
As per section 23(1)(a), annual value of house property which is not let during the year shall be expected rent for which it can be let from year to year.
Calculation of Expected Rent:
Expected rent shall be higher of
- Municipal Valuation, or
- Fair rental value
but restricted to standard rent value.
Municipal Valuation: Value determined by the municipal authority for the purpose of levy of municipal tax.
Fair rent valuation: Rental value which a property can fetch on the basis of its situation in a particular location or area or previous let-out history.
Standard Rent: Standard rent is fixed as per Rent Control legislation. If standard rent has been fixed for a particular area then owner of property of that area cannot be expected to receive rent more than the standard rent fixed.