What is a Vacant Property?

If the property or any part of property is let out and was vacant during the whole or part of the year and due to such vacancy, the actual rent is less than the expected rent, then the actual rent will be considered as Gross Annual Value of the property.

Under Income-tax Act, 1961 vacant property is treated as Deemed to be let out property.

Here is an example showing tax treatment of vacant property:

Mr A has two properties, one is used by him for his own residence and the other is given on rent. The details of let out the property are as follows:

1. Municipal Valuation of property: Rs. 1,20,000/- per annum
2. Expected Rent: Rs. 2,40,000/-
3. Rent per month: Rs. 20,000/-
4. Period for which property was vacant: 2 months
5. Municipal Taxes paid: Rs. 5,000/-
6. Interest on house loan: Rs. 25,000/-

What will be the Gross Annual Value of the above property? What will be the income chargeable under the head House Property?

Solution:

The Gross Annual Value will be calculated as follows:

1. Actual Rent is Rs. 2,00,000/- (Rs. 20,000/- X 10 months)
2. Expected Rent is Rs. 2,40,000/-

The Gross Annual Value will be Rs. 2,00,000/- (Rs. 20,000/- X 10 months) since the property was vacant for 2 months.

The Income from House Property will be calculated as follows: