Arrears of Rent and Unrealised Rent Received Later: Tax Treatment
Rent that could not be collected earlier, or arrears received later, can still be taxable in the year of actual receipt or realisation. The law also provides a flat 30% deduction from the qualifying amount.
Section 23 of the Income-tax Act, 2025
Section 23 deals with arrears of rent and unrealised rent received subsequently. It applies where an assessee receives arrears from a tenant or later realises rent that could not previously be collected.
Section 23(1): the qualifying arrears or subsequently realised unrealised rent is treated as income from house property for the tax year in which it is received or realised.
Section 23(2): the amount is included under the head "Income from house property" even if the assessee is no longer the owner of that property in the year of receipt.
Section 23(3): a deduction equal to 30% of the arrears or unrealised rent is allowed.
This means the tax point is linked to later receipt or realisation. A taxpayer does not escape tax merely because the property was sold or ownership otherwise ended before the old rent was recovered.
What do arrears of rent and unrealised rent mean?
Arrears of rent
Arrears are rent amounts relating to an earlier period that are received later. For this special rule, the relevant amount is brought to tax in the year in which it is actually received.
Unrealised rent
Unrealised rent is rent that was due from a tenant but could not be realised. Where such rent is subsequently recovered, the later recovery is taxed under the special rule for income from house property.
Under the earlier 1961 Act framework, conditions concerning exclusion of unrealised rent from actual rent were dealt with through the house-property provisions and prescribed rules. The later recovery rule under Section 25A ensured that a subsequent recovery did not remain untaxed.
How is the 30% deduction calculated?
The statute allows a deduction equal to 30% of the qualifying arrears of rent or unrealised rent. The balance is the amount included for this purpose under the head "Income from house property".
| Particulars | Illustrative amount |
|---|---|
| Arrears or unrealised rent received later | Rs. 100,000 |
| Deduction at 30% | Rs. 30,000 |
| Balance after the statutory deduction | Rs. 70,000 |
The example explains the operation of this provision only. Final taxable income and tax liability depend on the taxpayer's applicable law, tax year and other income or deductions.
Earlier law: Section 25A and Section 25AA of the Income-tax Act, 1961
The page originally dealt with Sections 25A and 25AA as separate provisions. That treatment is historically important, but it is not the correct way to state the later 1961 Act position.
Section 25A after the Finance Act, 2016
With effect from 1 April 2017, Sections 25A, 25AA and 25B were replaced by a consolidated Section 25A titled "Special provision for arrears of rent and unrealised rent received subsequently." The substituted provision covered both arrears of rent and subsequent recovery of unrealised rent and allowed a 30% deduction.
What happened to Section 25AA?
Section 25AA was part of the earlier statutory scheme for unrealised rent received subsequently. It ceased to operate as a separate provision when the consolidated Section 25A was substituted with effect from 1 April 2017. It should therefore be described as a historical provision, not as a separate current charging rule.
Example: unrealised rent recovered after sale of property
A taxpayer had let out a property and Rs. 200,000 of rent remained unrealised. The taxpayer later sold the property. In a subsequent tax year, the former tenant paid the Rs. 200,000.
Under the current Section 23 rule, the subsequent recovery is treated as income from house property in the tax year of realisation even though the taxpayer is no longer the owner. A 30% deduction, or Rs. 60,000 in this example, is allowed from the qualifying recovery.
Official legal and tax resources
For the authoritative statutory text and current filing guidance, use the official resources below. Tax law can change, and provisions applicable to an earlier assessment year should be checked against the law in force for that year.