As per Section 2(2) of the Income Tax Act, 1961, unless the context otherwise requires, the term “Annual Value” has the following Meaning/ Definition:
Section 2(2) of the Income Tax Act, 1961
“Annual Value”, in relation to any property, means its annual value as determined under section 23.
Annual value of a property determined u/s 23 of the Indian Income Tax Act, 1961 is the estimated rent that could be received if the property was let out. Annual value of a property is based on the property’s location, condition and the prevalent market rate of rent. Besides, certain other factors are also considered in the process, like actual rent received or receivable, the municipal value of the property, the standard rent and the fair rent. The potential income that can be generated by a property is considered as the annual value of a property which is subjected to tax under the head ‘Income from House Property’.