New IT Act 2025 — Knowledge Bank

Determination of annual value

Section 21 — Determination of annual value

Old Act equivalent: Section 23 of IT Act 1961 Sub-part: C.—Income from house property

Statutory Text

(1) For the purposes of section 20, the annual value of any property shall be deemed to be the higher of the following:—

(a) the sum for which it might reasonably be expected to let from year to year; or

(b) the actual rent received or receivable by the owner, if the property or any part of it is let.

(2) If the property or any part of it is let and was vacant for the whole or any part of the tax year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in sub-section (1)(a), the annual value of such property shall be deemed to be the amount so received or receivable.

(3) The annual value of the property shall be reduced by the taxes (including service taxes) levied by a local authority in respect of such property, actually paid during the tax year by the owner, irrespective of when such taxes became payable.

(4) The rent which cannot be realised by the owner shall not be included in computing the actual rent received or receivable, subject to the rules as may be made in this behalf.

(5) Where a property is held as stock-in-trade and is not let wholly or partly at any time during the tax year, the annual value of such property or part thereof shall be nil up to two years from the end of the financial year in which the certificate for completion of construction is obtained from the competent authority.

(6) The annual value of the property consisting of a house or any part thereof shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason.

(7) The provisions of sub-section (6)—

(a) shall apply only in respect of two of such houses as specified by the assessee in this behalf;

(b) shall not apply, if the house or any part thereof is actually let during any time of the tax year, or if the owner derives any other benefit from it.

Sub-sections

Sub-section (1)

Annual value = higher of (a) reasonable expected rent, or (b) actual rent received or receivable.

Sub-section (2)

Vacancy allowance: if property was vacant and actual rent falls below expected rent due to vacancy, the annual value is reduced to actual rent received or receivable.

Sub-section (3)

Local authority taxes (including service taxes) actually paid by the owner during the tax year are deducted from annual value.

Sub-section (4)

Unrealised rent: rent which cannot be realised is excluded from actual rent computation, subject to prescribed rules.

Sub-section (5)

Stock-in-trade property: annual value is nil up to two years from end of financial year of completion certificate — applies only if not let.

Sub-section (6)

Self-occupied property: annual value is nil if the owner occupies it for own residence or cannot actually occupy it.

Sub-section (7)

Limits on self-occupied benefit: (a) maximum two houses can claim nil annual value; (b) benefit not available if house is actually let or owner derives other benefit from it.

Provisos

None.

Explanations

None.

Tables

None.

Key Structure

  • Applies to: All property owners for computing annual value under section 20
  • Annual value determination:
    • Let-out property: higher of (expected rent, actual rent) — sub-section (1)
    • Vacancy relief: actual rent if lower due to vacancy — sub-section (2)
    • Deduction for local authority taxes actually paid — sub-section (3)
    • Unrealised rent excluded — sub-section (4)
  • Self-occupied property (sub-sections 6-7):
    • Annual value = nil
    • Maximum two houses (assessee’s choice)
    • Cannot claim if house is let or owner derives other benefit
    • Also applies where owner cannot actually occupy (e.g., employment elsewhere)
  • Stock-in-trade property (sub-section 5):
    • Annual value = nil for up to 2 years from completion certificate date
    • Only if not let during the tax year
  • Monetary limits: None in this section (deduction limits are in section 22)

Cross-References

  • s020-charging — Section 20: charging section (this section computes the annual value for section 20)
  • s022-deductions — Section 22: deductions from income (30% standard deduction + interest); sub-section (2) references section 21(6) for self-occupied property interest cap
  • s023-arrears-rent — Section 23: arrears of rent received subsequently
  • s024-co-owners — Section 24(2): co-owners individually entitled to section 21(6) self-occupied relief
  • s025-interpretation — Section 25: deemed owner for purposes of sections 20 to 24

Amendment Notes

  • Finance Act 2026 amendment: Sub-section (5) — “nil for” substituted with “nil up to” two years from end of financial year of completion certificate. This clarifies the stock-in-trade nil annual value benefit period.

Practical Notes

  • The two-house self-occupied benefit (sub-sections 6-7) allows an assessee to choose which two houses to treat as self-occupied — the third and subsequent houses are deemed let-out at expected rent.
  • Vacancy allowance under sub-section (2) applies only when actual rent is lower than expected rent due to vacancy — if rent is lower for other reasons, sub-section (1) higher-of rule applies.
  • Local authority taxes under sub-section (3) are deductible on actual payment basis, not accrual — taxes levied but not paid are not deductible.
  • The stock-in-trade two-year window in sub-section (5) is important for builders/developers holding unsold inventory.
  • “Cannot actually occupy due to any reason” in sub-section (6) covers employment in another city — but sub-section (7)(b) overrides if the property is actually let.

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