Net Annual Value Calculation u/s 22 of IT Act 1961

Section 22 covers ‘Income from house property’ and Net Annual Value calculation.  Income Tax is to be charged under the head ‘Income from house property’ on the annual value of property consisting of any building or land 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. 

Under section 22, the annual value of any property shall be deemed to be:

(a)    the sum for which the property might reasonably be expected to let from year to year ;
Or
(b)    When the property or any part of the property is let out,  the actual rent received or receivable by the owner in respect thereof  is in excess of the sum referred to in clause (a), then  the amount so received or receivable;
Or
( c) Where the property or any part of the property is let  out and was vacant during the whole or any part of the year  due to which  the actual rent received or receivable by the owner is less than the sum referred to in clause (a),then the amount so received or receivable.

The net annual value of the house property = The annual value computed as above ( – ) the taxes levied by the Local Authority. 

In order to reduce taxes, it should be actually paid by the assessee in the financial year, irrespective of the year in which it became due. 

When the house is self -occupied  or  kept vacant for the entire year, the annual value  can be taken as nil. Where the property is let out for a  part of the year and is self -occupied for the remaining period, then proportionate value for which it was self- occupied can be deducted to calculate the net annual value. 

When the assessee occupies more than one house a own residence, the annual value of one house, at the option of the assessee, can be taken as nil and annual value of other houses shall be determined as let out property.