Annual Value of House Property

Q. What is Annual Value of House Property of an Assessee?

Annual Value: Annual value of house refers to the gross rental income from the house property in a
particular income year (Shil et al, 2011). For assessment purpose, annual value is the higher of actual
rental value and the municipal value of the house property.
According to Income Tax Ordinance (1994) section 2(3)(a) annual value shall be deemed to be in relation
to any property let out:i)

The sum for which property might reasonably be expected to let from year to year and any
amount received by letting out furniture, fixture, fittings etc.

ii) Where the annual rent in respect thereof is in excess of the sum referred to in the earlier
paragraph, the amount of the annual rent.
Determination of annual value of the house property:
According to Shil et al, 2011, Actual Value and Municipal Value are the most important factor in
computation of annual value of house property. Actual value is the amount that is received from the
tenants as rent of the house property, whereas, municipal value refers to the value specified by the
municipal authority.
It is to be noted that, the higher value among the Actual and Municipal value would be considered as the
annual value of the house property.
Example: Mr. Chowdhury is the owner of a house, which is he let out at a monthly rent of Tk. 10000. The
municipal value of this house is Tk. 130000. Hence, the annual value of that house is:
Actual Rental Value (10000 * 12) = Tk. 120000
Municipal value
Annual value (higher one)

= Tk. 130000
= Tk. 130000

However, this valuation is influenced by the following situations:

Situation 1: If the tenant bears any owners expenses like: repair and maintenance of the house, then the
actual rental value will be increased by the same amount as the owner receives such extra benefits from
the tenants.

Q. What is the basis of taxation in respect of house property?

The owner of the house property, legal or beneficial, is liable to pay tax under this section 24 & 25 of
Income Tax Ordinance, 1984. Mere possession or occupation is not the criteria for charging tax. The
charge of tax under the head Income from House Property is on the owner, be it a legal owner or
deemed owner or beneficial owner [P.J. Swaminathan vs. CIT (1984) 145 ITR 198 (Mad)]. According to
[R.B. Jodhamal Kuthiala vs. CIT (1971) 82 ITR 570 (SC)], the owner must be that person who can
exercise the rights of the owner, not on behalf of the owner but in his own right (Shil et al, 2011).
To be assessable, a house property needs to fulfill the following conditions:
Assessee must be legal owner or beneficiary of the house.
Income must come from the house property. Vacant land having no house will not be taxed.
For assessment Annual Value is to be determined.
Loss arising from rented house may be set-off against income from other heads of income

Mahmud, et al (2011), mentioned the following are the basis of taxation in respect of several kinds of
house property:

Property is held under Trust: Tax may be paid either by the trustee or by the beneficiary.

Mortgaged Property: Mortgagor will pay tax on the income from house property; hence the
ownership has not transferred.

Leased Property: In terms of long term lease, lessee is liable to pay tax. But, in case of short
term lease lessor will pay tax under the head Income from Other Sources.

Co-ownership: Each co-owner will be assessed separately for his/her own share.

In case of insolvency: In case of insolvency Evacuee is not the owner. It is the custodian who
will be assessed in respect of such property [R.B. Jodhamal Kuthiala vs. CIT (1971) 82 ITR 570
(SC)]. If the owner become insolvent, then the official receiver will be liable for tax.

Property owned by Firm: Where the house property is owned by a partnership firm, the partners
cannot be assessed as co-owners. The firm is assessable as owner [Sarvamangala Properties Ltd. vs.
CIT (1973) 90 ITR 267 (cal.)].

Benami Properties: Beneficial owner to be assessed.