Annual value of house property is the amount for which a property might reasonably be expected to be let from year to year. Under the Income-tax law, income from house property is generally computed on the basis of its annual value. The annual value represents the capacity of the property to earn rent rather than merely the rent actually received. The concept is important for determining taxable income under the head “Income from House Property.” For a let-out property, the annual value is generally determined with reference to the expected rent and actual rent received or receivable, subject to the provisions of the Income-tax Act. Expected rent is normally based on the reasonable rent that the property can fetch, considering factors such as municipal valuation, fair rent and standard rent where applicable. If the property is let out and the actual rent is higher than the expected rent, the actual rent may be taken into account for determining the gross annual value. Municipal taxes actually paid by the owner during the previous year are then deducted to arrive at the net annual value. A special situation arises when a house property is self-occupied for only a part of the previous year and let out for the remaining part. In such a case, the determination of annual value depends upon the period for which the