Annual value of any property is the amount for which it is expected to be rented out in a year. This is the notional rental amount that the property can earn in a year, provided it is let out.
Annual value applies for any real estate asset, like land or a building. It is the notional rent, which is the sum that the property would have earned, had it been let out for the year. Notional rent is often a standard aspect while filing taxes.
Annual value has been listed under the Income Tax Act’s Section 23 (1), stating that it is the amount which any property can be expected to earn, if let out for a year. This is the value which is possible for the property to get in the market as per the current circumstances, inclusive of demand for the property, the type of construction, amenities, rentals for similar properties in similar localities, municipal/government valuations, etc. The annual value is not equivalent to the actual rent that is earned. It is the notional rent at which the property may be rented/let out.
The 2001 Finance Act brought in a fresher approach, talking about annual value as the amount receivable/received in the earlier year or year-to-year, in case of any property or any portion of the same being rented/let out. If the let-out property stays vacant for the earlier year or during any portion of the earlier year, then the actual rental amount will be lower than the sum indicated above. This will be the annual value of the property in such a scenario.
