Special provision for arrears of rent and unrealized rent received subsequently [New Section 25A]
Effective from: A.Y.2017-18
(i) At present, section 25AA contains the special provisions on taxation of unrealised rent allowed as deduction when realised subsequently and section 25B contains the tax treatment of arrears of rent received.
(ii) These two provisions are now merged in new section 25A, in order to ensure uniformity in tax treatment of arrears of rent and unrealised rent. Thus, new section 25A substitutes erstwhile sections 25A, 25AA and 25B.
(iii) As per new section 25A(1), the amount of rent received in arrears from a tenant or the amount of unrealised rent realised subsequently from a tenant by an assessee shall be deemed to be income from house property in the financial year in which such rent is received or realised, and 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 financial year.
(iv) Summary:
New section 25A(2) provides a deduction of 30% of arrears of rent or unrealised rent realised subsequently by the assessee.
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New Section 25A
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Arrears of Rent / Unrealised Rent |
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| (i) | Taxable in the year of receipt/realisation |
| (ii) | Deduction@30% of rent received/realised |
| (iii) | Taxable even if assessee is not the owner of the property in the financial year of receipt realisation. |
Example
Mr. Anand sold his residential house property in March, 2016.
In June, 2016, he recovered rent of ` 10,000 from Mr. Gaurav, to whom he had let out his house for two years from April 2010 to March 2012. He could not realise two months rent of ` 20,000 from him and to that extent his actual rent was reduced while computing income from house property for A.Y.2012-13.
Further, he had let out his property from April, 2012 to February, 2016 to Mr. Satish. In April, 2014, he had increased the rent from ` 12,000 to ` 15,000 per month and the same was a subject matter of dispute. In September, 2016, the matter was finally settled and Mr. Anand received ` 69,000 as arrears of rent for the period April 2014 to February, 2016.
Would the recovery of unrealised rent and arrears of rent be taxable in the hands of Mr. Anand, and if so in which year?
Solution
Since the unrealised rent was recovered in the P.Y.2016-17, the same would be taxable in the A.Y.2017-18 under section 25A, irrespective of the fact that Mr. Anand was not the owner of the house in that year. Further, the arrears of rent was also received in the P.Y.2016-17, and hence the same would be taxable in the A.Y.2017-18 under section 25A, even though Mr. Anand was not the owner of the house in that year. A deduction of 30% of unrealised rent recovered and arrears of rent would be allowed while computing income from house property of Mr. Anand for A.Y.2017-18.
Computation of income from house property of Mr. Anand for A.Y.2017-18
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Particulars |
Rs |
| (i) Unrealised rent recovered
(ii) Arrears of rent received
Less: Deduction@30%
Income from house property |
10,000
69,000 79,000 23,700
55,300 |