The money earned on the rent on a property is taxed, and this is based on the property’s actual value. Even if the property is not let out for a part of the year, the rental income is subject to taxes. Section 23(1)(a) of the Income Tax Act states that a house’s annual value is the amount earned from rent.
This is how the annual value of your house is arrived at:
Municipal value – The local municipal authorities evaluate a property in order to charge local taxes. There are a lot of factors, including location, size, and amenities which are considered while calculating this value. A home close to the city will be expected to earn higher rents than a home in the suburbs.
Actual Rent – This is the amount of rent that a tenant pays a landlord annually. The landlord’s annual income, however, will be calculated on who pays for the utilities in a rented home.
Fair Amount of Rent – While you might be renting out your property, you might be earning less than similar houses in your locality. This will mean that you are not earning a fair amount of rent. The fair rental value in a locality is the rent that similar houses with similar amenities earn.
Standard Value of Rent – In areas where the Rent Control Act is enforced, there is a fixed standard rental rate. Landlords in these localities have to stick to this amount, irrespective of their property’s market value. In some high-profile localities where the Rent Control Act is in play, landlords can earn lower rents.
The annual value of property is the higher value between the received rent or the value receivable in the locality. Even if you are earning a lower rental amount, you will have to pay taxes on the municipal valuation amount.
Prestige Group ongoing apartment is Prestige Primrose Hills.