Answer

1. F

   Facts

   For a let out property, annual value is the higher of expected rent and actual rent. Expected rent depends on municipal value and fair rent. Low rent to a relative can mean tax on the higher expected rent.

2. P

   Provisions and law

   • Sec 23, Income-tax Act 1961Annual value rules: up to two self-occupied houses have nil annual value; others are treated as let out at expected rent
   • Sec 22 (now Sec 20)Annual value of property you own is taxed under house property
3. A

   Analysis

   If expected rent is ₹2,40,000 and actual rent is ₹60,000, annual value under Sec 23 can be ₹2,40,000. If you owned only two houses and the cousin's flat is not truly let out, consider whether the arrangement is a licence without rent, which may change the treatment. Rent control laws can limit expected rent in some cities. Keep a written agreement either way.

4. C

   Conclusion

   1. 1Find the municipal value and local fair rent.
   2. 2Compare expected rent with actual rent.
   3. 3Use the higher figure as annual value if let out.
   4. 4Keep a clear written agreement.

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