It is crucial to understand when GAV comes into play before learning how to calculate it. As per Section 22 of the Income Tax Act of 1961, landlords are liable to pay tax on the property’s annual value if the conditions listed below are met.
- The person (taxpayer) who receives income from the property must also be the owner of the property.
- The term “property” refers to any land or building and not vacant land.
- The owner of the property should not use it for their own business or profession.
Once the above conditions are satisfied, you as a landlord should calculate the property’s GAV in the following manner.
Step 1: Determine the rent you are expecting to earn from the property.
Step 2: Figure out the amount of rent you have actually received.
Step 3: Check to see if the expected rent is higher or the received rent.
Step 4: Determine how much loss you have incurred due to vacancy.
Step 5: Deduct the loss from step 3. The amount after deducting the loss is considered as the gross annual value of the property.