Determination of annual value
[Section 21 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 21(1) of Income Tax Act 2025
21(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.
Section 21(2) of Income Tax Act 2025
21(2) In case the property or any part of it is let in normal course and was vacant for the whole or any part of the tax year, the annual value of such property shall be computed as per sub-section (1)(b).
Section 21(3) of Income Tax Act 2025
21(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.
Section 21(4) of Income Tax Act 2025
21(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.
Section 21(5) of Income Tax Act 2025
21(5) In respect of a property or its part held as stock-in-trade and not let wholly or partly at any time during the tax year, the annual value shall be nil for two years from the end of the financial year in which completion certificate is obtained from the competent authority.
Section 21(6) of Income Tax Act 2025
21(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.
Section 21(7) of Income Tax Act 2025
21(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.
FAQs on Section 21 of Income Tax Act 2025
1. What is the annual value of a property under the Income Tax Act, 2025?
The annual value of a property is the higher of:
(a) the amount for which the property can reasonably be expected to be let from year to year, or
(b) the actual rent received or receivable by the owner if the property is let.
2. How is the annual value determined if a property is vacant for part of the year?
If the property was let under normal circumstances but remained vacant for any part of the tax year, the annual value will be based on the actual rent received or receivable.
3. Can property taxes be deducted from the annual value?
Yes, local authority taxes (including service taxes) that are actually paid by the owner during the tax year can be deducted from the annual value, regardless of when they became due.
4. Is unrealized rent included in the annual value?
No, rent that cannot be realized by the owner will not be included in the annual value, subject to prescribed rules.
5. What is the annual value of a property held as stock-in-trade?
For a property or part of it held as stock-in-trade and not let at any time during the tax year, the annual value shall be nil for two years from the end of the financial year in which the completion certificate is obtained.
6. What is the annual value if the owner occupies the property for personal residence?
The annual value is considered nil if the owner occupies the house for self-residence or is unable to occupy it due to any reason.
7. How many self-occupied properties can be considered for nil annual value?
The nil annual value provision applies to a maximum of two houses, as specified by the owner.
8. What if the self-occupied house is rented out for a part of the year?
If the house or any part of it is let at any time during the tax year or if the owner derives any benefit from it, the nil valuation provision does not apply.
9. Does the law provide any special exemptions for under-construction properties?
No special exemption is provided, but properties held as stock-in-trade are assigned nil annual value for two years post-completion.
10. What happens if local taxes are due but not paid?
Only taxes that are actually paid during the tax year can be deducted from the annual value.
The determination of the annual value under Section 21 of the Income Tax Act, 2025 is primarily based on the potential rental income or actual rent received. However, specific provisions allow for reductions, exemptions, and adjustments under various conditions:
- For Let-Out Properties: The annual value is the higher of the expected rental value or the actual rent received. If the property remains vacant for part of the year, only the actual rent is considered.
- For Self-Occupied Properties: The annual value is nil for up to two self-occupied houses unless they are rented out or used for other benefits.
- For Stock-in-Trade Properties: Newly completed properties held as stock-in-trade have a nil annual value for two years after obtaining the completion certificate.
- For Tax Deductions: Local authority taxes paid during the year can be deducted from the annual value.
- For Unrealized Rent: Any rent that cannot be recovered is excluded from the annual value computation, subject to specific rules.
These provisions ensure a fair and practical approach to determining the taxable value of a property while allowing reasonable exemptions and deductions.
