Arrears of rent and unrealised rent received subsequently
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 23(1) of Income Tax Act 2025
23(1) The amount of arrears of rent received from a tenant or the unrealised rent realised subsequently from a tenant shall deemed to be the income from house property in respect of the tax year in which such rent is received or realised.
Section 23(2) of Income Tax Act 2025
23(2) The amount deemed to be income from house property under sub-section (1) shall be included in the total income of the assessee under the head “Income from house property”, whether the assessee is the owner of the property or not in that tax year.
Section 23(3) of Income Tax Act 2025
23(3) A sum equal to 30% of the arrears of rent or the unrealised rent referred to in sub-section (1) shall be allowed as deduction.
FAQs Section 23 of Income Tax Act 2025
1. What is arrears of rent?
Arrears of rent refer to rental payments that were due in previous years but were not received at that time and are received subsequently.
2. What is unrealised rent?
Unrealised rent is the portion of rent that was due but could not be recovered from the tenant earlier. If it is subsequently recovered, it is termed as unrealised rent received.
3. How is arrears of rent and unrealised rent taxed under the Income Tax Act, 2025?
As per Section 23(1) of the Income Tax Act, 2025, arrears of rent or unrealised rent received subsequently is deemed as income from house property in the tax year in which it is received.
4. Does it matter whether the landlord is still the owner of the property?
No. As per Section 23(2), even if the taxpayer is no longer the owner of the property when arrears or unrealised rent is received, it is still taxable as “Income from house property” in the year of receipt.
5. Is there any deduction available on arrears or unrealised rent received subsequently?
Yes. As per Section 23(3), a 30% deduction is allowed from the arrears of rent or unrealised rent received subsequently.
6. In which year should arrears of rent or unrealised rent be reported in the tax return?
It should be reported in the year in which it is actually received, not when it was due.
7. Will arrears of rent or unrealised rent be taxed even if the taxpayer has already paid tax on expected rent in earlier years?
Yes. Even if the taxpayer had paid tax on expected rent in earlier years, the arrears or unrealised rent received subsequently is separately taxed in the year of receipt.
8. Can the taxpayer claim additional deductions apart from the 30% deduction on arrears or unrealised rent?
No. The only deduction available under Section 23(3) is 30% of the amount received, and no other deductions (such as municipal taxes or interest on home loan) can be claimed against this income.
9. Will the arrears of rent be taxed if it is received from an ex-tenant?
Yes. Even if the rent is received from an ex-tenant (who was occupying the property in the past), it is still taxable under Section 23(1).
10. If arrears of rent or unrealised rent is received after the owner’s death, who is liable to pay tax?
The legal heirs or representatives of the deceased owner will be liable to pay tax on the arrears or unrealised rent received.
11. How should arrears or unrealised rent be disclosed in the Income Tax Return (ITR)?
It should be disclosed under the head “Income from House Property” as arrears of rent or unrealised rent received subsequently, after availing the 30% standard deduction.
12. What if the arrears of rent received subsequently are for multiple past years?
Regardless of how many years the arrears relate to, the entire amount is taxable in the year it is received.
13. Is arrears of rent subject to advance tax provisions?
Yes. If the total tax liability including arrears of rent exceeds the prescribed threshold for advance tax, the taxpayer must comply with advance tax provisions.
14. Does arrears of rent impact the Gross Annual Value (GAV) of the property for that year?
No. Arrears of rent received subsequently are taxed separately and do not form part of the Gross Annual Value (GAV) for the current year.
15. What if the unrealised rent was earlier claimed as a deduction due to non-recovery, but it is later recovered?
If the taxpayer had earlier claimed a deduction for unrealised rent under Section 23 in previous years, but later recovers the amount, it must be included as income in the year of receipt.
16. How does the 30% deduction on arrears or unrealised rent help in tax savings?
The 30% deduction allows taxpayers to reduce their taxable income by a fixed percentage to account for expenses related to maintaining the property, ensuring they do not pay tax on the full amount received.
17. If arrears of rent or unrealised rent is received from multiple tenants, how should it be reported?
The total amount received from all tenants must be added together and reported as a single income figure under “Income from House Property.”
18. Is TDS applicable on arrears of rent or unrealised rent received?
If the rent was subject to TDS (Tax Deducted at Source) under earlier provisions when it was due, then TDS might have already been deducted. However, fresh TDS deductions may not be applicable on arrears received from individual tenants.
19. Will arrears of rent received in cash be taxed differently from bank transfers?
No. The tax treatment remains the same regardless of whether the arrears of rent or unrealised rent is received in cash, cheque, or bank transfer.
20. Can a taxpayer adjust losses from house property against arrears of rent income?
No. Since arrears of rent or unrealised rent is considered a separate category under Section 23, it cannot be adjusted against losses from house property.
Under the Income Tax Act, 2025, arrears of rent and unrealised rent received subsequently are taxable as “Income from House Property” in the year of receipt, irrespective of when they were due. Even if the taxpayer is no longer the owner of the property, this income remains taxable.
To provide relief, the law allows a flat 30% deduction under Section 23(3), ensuring that taxpayers do not bear the full tax burden on past rent recoveries. However, no other deductions can be claimed against this income.
Taxpayers should ensure proper reporting in their Income Tax Return (ITR) and comply with advance tax provisions if applicable. The taxation of arrears and unrealised rent ensures that all rental income, whenever received, is accounted for in the tax system, maintaining fairness and transparency.
