Section 23 Income Tax Act 2025: How Are Arrears of Rent and Recovered Unrealised Rent Taxed?
Section 23 of the Income-tax Act, 2025 governs arrears of rent and unrealised rent recovered in a later year. It taxes the amount in the year of receipt, even where the recipient no longer owns the property, and allows a 30% deduction.
What does Section 23 cover?
The provision deals with two kinds of rent received after the period to which they relate: arrears of rent paid late by a tenant and unrealised rent that was not recovered earlier but is subsequently collected. These receipts are deemed income from house property in the tax year of receipt or realisation.
Unlike the ordinary computation of annual value under Section 21, Section 23 specifically addresses these later receipts. Its 30% deduction is calculated on the qualifying amount received, not on a separately computed annual value.
Section 23 explained subsection by subsection
Section 23(1): Taxability in the year of receipt
Arrears received from a tenant and unrealised rent subsequently realised are treated as income from house property for the tax year in which the money is received or recovered. The rent need not relate to that same year.
Section 23(2): Ownership in the receipt year is not necessary
The receipt is included under the head Income from house property even if the assessee is no longer the owner of the property in that tax year. For example, a former landlord who receives old rent after selling the house may still be taxed on the receipt under this provision.
Section 23(3): Statutory 30% deduction
A deduction of 30% of the arrears of rent or recovered unrealised rent is allowed. Accordingly, 70% of the qualifying receipt remains taxable under this head, subject to other applicable provisions governing the assessee's total income.
Relevant statutory terms and distinctions
Practical examples of tax calculation
Example 1: Arrears received in a later tax year
A landlord receives Rs. 1,50,000 in the tax year 2026-27 as rent arrears relating to an earlier period.
| Particulars | Amount |
|---|---|
| Arrears of rent received | Rs. 1,50,000 |
| Less: Section 23(3) deduction at 30% | Rs. 45,000 |
| Taxable house-property income from this receipt | Rs. 1,05,000 |
Example 2: Unrealised rent recovered after sale
An assessee sells a rented property but subsequently recovers Rs. 80,000 of previously unrealised rent from the former tenant.
| Particulars | Amount |
|---|---|
| Unrealised rent recovered | Rs. 80,000 |
| Less: 30% deduction | Rs. 24,000 |
| Taxable amount under Section 23 | Rs. 56,000 |
The result does not change merely because the recipient no longer owns the house in the year of recovery.
Relationship with other income-tax provisions
Section 20: Charging provision for income from house property. Section 21: Determination of annual value. Section 22: Deductions in computing house-property income. Section 24: Property owned by co-owners. Section 23 is a separate rule for rent received or recovered subsequently.
Earlier law: The corresponding provision under the Income-tax Act, 1961 was Section 25A. The parliamentary committee described the 2025 provision as a textual simplification without a policy change. Do not confuse Section 23 of the 2025 Act with Section 23 of the 1961 Act.
Frequently asked questions
When are arrears of rent taxable?
They are taxable in the tax year in which the arrears are received, not automatically in the earlier year to which the rent relates.
Can unrealised rent recovered after selling the property be taxed?
Yes. Section 23(2) expressly applies even if the assessee is not the owner of the property in the year of receipt.
How much deduction is allowed?
Section 23(3) permits a deduction equal to 30% of the arrears or recovered unrealised rent.
Does Section 23 apply to ordinary current-year rent?
No. Ordinary rent and annual value are generally addressed through Sections 20 and 21, with applicable deductions under Section 22. Section 23 concerns specified later receipts.
Official statutory sources
For authoritative wording and amendments, consult the Income-tax Act, 2025 as amended by Finance Act, 2026 (Income Tax Department) and the Income-tax Act, 2025 in the Gazette of India.
Last reviewed: 10 November 2026. This article is general legal information and should be read with applicable rules, notifications and facts of the particular case.