Arrears of Rent and Property Owned by Co-owners
The law governing arrears of rent, subsequent recovery of unrealised rent, and house property owned by co-owners has been reorganised under the Income-tax Act, 2025. From 1 April 2026, the relevant provisions are Sections 23 and 24 of the Income-tax Act, 2025. For the earlier Income-tax Act, 1961 framework, the corresponding provisions were Sections 25A and 26.
Section 23: Arrears of rent and unrealised rent received subsequently
Section 23 of the Income-tax Act, 2025 applies where an assessee receives arrears of rent from a tenant or later realises rent that had previously remained unrealised. The amount is treated as income from house property for the tax year in which it is actually received or realised.
Key rules under Section 23
- The receipt is taxable under the head Income from house property in the tax year of receipt or realisation.
- The rule applies even if the assessee is no longer the owner of that property in the year in which the amount is received or realised.
- A deduction equal to 30% of the arrears of rent or unrealised rent is allowed.
- Accordingly, subject to the statutory provision, the balance after the 30% deduction forms the amount brought to tax under this rule.
Meaning of arrears of rent
Arrears of rent are rental amounts relating to an earlier period that are received later. Section 23 taxes such arrears in the tax year of receipt rather than reopening the earlier year's house-property computation under this special rule.
Meaning of unrealised rent received subsequently
Unrealised rent is rent that was not actually recovered from the tenant when it became due. If that amount is subsequently realised, Section 23 brings it to tax in the tax year of realisation and allows the statutory 30% deduction.
Section 24: Property owned by co-owners
Section 24 of the Income-tax Act, 2025 deals with property owned by two or more persons where their respective shares are definite and ascertainable. In that situation, the co-owners are not assessed as an association of persons merely in respect of that property. Instead, the income is computed separately according to each co-owner's share and included in that co-owner's total income.
Conditions and effect
- There must be two or more co-owners.
- Each co-owner's share must be definite and ascertainable.
- Income from the property is apportioned according to the respective ownership shares.
- The statutory relief for qualifying self-occupied property is applied as if each co-owner were individually entitled to the relief, subject to the conditions of the Act.
Legacy position under the Income-tax Act, 1961
For periods governed by the Income-tax Act, 1961, Section 25A consolidated the special treatment of arrears of rent and subsequent recovery of unrealised rent. It treated the receipt as house-property income in the financial year of receipt or realisation, whether or not the assessee remained owner in that year, and allowed a deduction of 30%.
Section 26 of the 1961 Act dealt with property owned by co-owners. Where their shares were definite and ascertainable, the co-owners were not assessed as an association of persons in respect of that property; each person's share of the computed house-property income was included in that person's total income.
| Subject | Income-tax Act, 2025 | Legacy Income-tax Act, 1961 |
|---|---|---|
| Arrears of rent and subsequently realised unrealised rent | Section 23 | Section 25A |
| Property owned by co-owners | Section 24 | Section 26 |
| Deduction from qualifying arrears/unrealised rent | 30% | 30% |
Practical examples
Example 1: Arrears received after ownership has ended
If a former owner receives qualifying arrears of rent after the property has already been transferred, the special provision can still tax that receipt as income from house property in the tax year of receipt. The statutory 30% deduction applies to the qualifying arrears.
Example 2: Two co-owners with fixed shares
If A and B own a house in clearly established shares of 60% and 40%, the house-property income is computed and attributed according to those respective shares under the co-ownership provision, rather than assessing them as an association of persons merely because they jointly own the property.
Official resources
For the current statutory text and amendments, refer to the official Income Tax Department resources:
- Income-tax Act, 2025 - official Act
- Income Tax Department - official website
- Income Tax e-Filing Portal