Costing and Taxation · Ch 6 — Income from House Property
Chargeability and Determination of Annual Value (Sections 22 and 23(1))
Chargeability and Determination of Annual Value (Sections 22 and 23(1))
This chapter grounds every numerical on Assessment Year 2026-27 (income of Financial Year 2025-26).
Assessment Year grounding (read this first)
The Section citations in this chapter — 22, 23(1), 23(2), 24(a), 24(b) — are stable provisions of the Income Tax Act, 1961 that do not change from year to year. The specific rupee figures used later in this chapter — the ₹2,00,000 / ₹30,000 interest-deduction ceilings for a self-occupied house, and the flat 30% standard deduction — are the figures currently in force under the Finance Act and are grounded here for Assessment Year 2026-27. These are Finance-Act figures, not permanently fixed numbers in the Act itself; always confirm the figure applicable for the year actually being examined before relying on it outside this course.
Income from house property is one of the five Heads of Income introduced earlier in this course. This section covers WHEN a property's income is chargeable under this head at all (Section 22), and HOW the starting figure — the Annual Value — is worked out once it is (Section 23(1)).
Chargeability — Section 22
Section 22 charges to tax the Annual Value of property consisting of any building, or land appurtenant to a building, of which the assessee is the owner — with one important carve-out: any portion of the property that the assessee occupies for a business or profession carried on by them, the profits of which are separately chargeable to tax, is kept OUTSIDE this head altogether. Three conditions must therefore all be satisfied together for this head to apply:
- The property must consist of a building (or land appurtenant to a building) — vacant land on its own is not covered here.
- The assessee must be the owner of the property — it is ownership, not occupation, that triggers the charge; a tenant paying rent for a house they occupy has no income to report under this head merely because they live there.
- The property must not be used by the owner for a business/profession of their own whose profits are taxable — such self-used business premises are excluded from this head from the very start, not merely given a deduction after being brought in.
Ownership, not occupation, is what matters
Even a property the owner keeps vacant, or lets out to someone else, or occupies personally, can all trigger a computation under this head — what never triggers it is occupying the property purely for one's OWN taxable business or profession, since that portion's economic benefit is already accounted for under "Profits and Gains of Business or Profession" instead.
Determination of Annual Value — Section 23(1)
Once a property IS chargeable under Section 22, Section 23(1) is the machinery provision that tells us how to arrive at its Annual Value (also called the Gross Annual Value, GAV, once the vacancy rule is applied). It lays down three limbs:
| Clause | Rule |
|---|---|
| 23(1)(a) | The Annual Value is the sum for which the property might reasonably be expected to let from year to year — the Expected Rent |
| 23(1)(b) | Where the actual rent received or receivable is MORE than the Expected Rent, the actual rent received/receivable is taken instead |
| 23(1)(c) | Where the property was let out and was vacant for part of the year, and OWING TO SUCH VACANCY the actual rent received/receivable is LESS than the Expected Rent, the actual rent received/receivable is taken (not the higher Expected Rent) |
Clause (c) is the vacancy-adjustment rule this chapter's let-out computation relies on: a vacancy period is never taxed as if rent had still been earned on it — the Gross Annual Value simply falls to whatever rent was actually realised for the year, provided the shortfall is genuinely caused by the vacancy and not, say, by charging a below-market rent throughout.
Expected Rent — how it is worked out
Expected Rent under clause (a) is arrived at from three reference figures for the property:
| Term | Meaning |
|---|---|
| Municipal Value (MV) | The value the local municipal authority assigns to the property for levying municipal (house) tax |
| Fair Rent (FR) | The rent a similar property in the same locality, with similar amenities, would fetch in the open market |
| Standard Rent (SR) | The maximum rent a landlord is legally entitled to recover under a Rent Control Act applicable to that property, where one applies |
Expected Rent = the HIGHER of Municipal Value and Fair Rent, restricted to (i.e., not exceeding) the Standard Rent, where a Standard Rent applies. Where no Rent Control Act applies to the property, Expected Rent is simply the higher of Municipal Value and Fair Rent, with no such ceiling.
WBCHSE's Costing and Taxation syllabus grounds this Annual Value machinery on the same Income Tax Act, 1961 that every CBSE/NCERT-aligned Accountancy or Economics course teaching "Income from House Property" also relies on — Sections 22 and 23 are identical central law regardless of which board's syllabus is being followed.
The figure Section 23(1) arrives at for a property: the Expected Rent, or the actual rent received/receivable if higher, or the actual rent received/receivable (even if lower than Expected Rent) where the shortfall is genuinely caused by a vacancy period.
The higher of Municipal Value and Fair Rent, restricted to Standard Rent where a Rent Control Act applies to the property.
Municipal Value: the local authority's valuation for house tax. Fair Rent: the open-market rent for a similar property nearby. Standard Rent: the legal ceiling on recoverable rent under an applicable Rent Control Act.