Chapter IV - Computation of Total Income
Section 23
Section 23: arrears of rent and unrealised rent received subsequently
Section 23 deals with rent that catches up with the taxpayer later - either arrears of rent from an earlier period, or rent that was written off as unrealisable and is then recovered. Both are taxed as house property income in the year actually received, with a flat 30% deduction, regardless of whether the taxpayer still owns the property by then.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) The amount of arrears of rent received by an assessee from a tenant, or the unrealised rent realised subsequently from a tenant, shall be deemed to be the income from house property in respect of the tax year in which such rent is received or realised.
(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.
(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.
Introduction
This rule deals with rent arriving after the year to which it relates. Receipt or later realisation, rather than the old rental period, determines the year of inclusion.
Key takeaways
Tax year of receipt
Rent arrears or previously unrealised rent recovered from a tenant is deemed house-property income in the tax year when it is received or realised.
Ownership no longer required
The recovered amount remains taxable under the house-property head even if the recipient is no longer the owner in that tax year.
Statutory deduction
A deduction equal to 30% of those rent arrears or recovered unrealised rent is allowed.
What Section 23 says
Arrears of rent received from a tenant, or unrealised rent subsequently realised from a tenant, are deemed to be income from house property for the tax year in which the amount is received or realised (section 23(1)).
This deemed income is included in the assessee's total income under "Income from house property" for that year, whether or not the assessee still owns the property in that tax year (section 23(2)).
A flat 30% of the arrears of rent or unrealised rent is allowed as a deduction (section 23(3)).
Identify the receipt year
Separate arrears of rent newly received from rent previously treated as unrealised but now recovered. Both are brought into house-property income in the tax year of receipt or realisation.
A later sale of the property does not remove the charge: subsection (2) applies even if the recipient is no longer its owner in that year.
Compute the statutory deduction
Calculate the amount brought into income under subsection (1), then deduct 30% of that amount under subsection (3).
Retain tenancy, past unrealised-rent and receipt records so the recovery is not counted twice in different years.
Step-by-step flow for applying Section 23
- 1
Is the receipt arrears of rent, or rent earlier unrealised that is now realised, from a tenant?
- No: Section 23 does not apply.
- Yes: Go to the next step.
- 2
In which tax year was it received or realised?
It is taxed in that tax year, not in the year to which the rent relates (Section 23(1)).
- 3
Is the assessee still the owner?
Not relevant: Section 23(2) includes it under "Income from house property" whether or not the assessee owns the property in that year.
- 4
Deduct 30% of the amount (Section 23(3)) and include the balance in income
Practical checklist
Do
- Match each delayed rent receipt to the tenant and original unpaid period.
- Show the receipt in the year collected and compute the separate 30% statutory deduction.
Avoid
- Do not omit the receipt because the property was sold before collection.
- Do not treat an old uncollected amount as current-year rent without reconciling its earlier treatment.
Illustrative example
Worked example: arrears received after selling the property
Hypothetical facts (illustration only, not a real taxpayer): Mr. Rao sold a let shop last year. In the current tax year a former tenant pays him ₹1,20,000 of old rent arrears.
Year of taxation
The arrears are deemed income from house property of the current tax year, when received.
Ownership
Section 23(2) taxes it even though he no longer owns the shop.
Deduction
30% of ₹1,20,000 = ₹36,000.
Taxable amount
₹1,20,000 - ₹36,000 = ₹84,000.
Outcome
- ₹84,000 is included under "Income from house property" for the current tax year.
Glossary
- Arrears of rent
- Rent from an earlier period paid later by the tenant.
- Unrealised rent
- Rent not recovered from a tenant when originally due, but later realised.
Frequently asked questions
Is arrears of rent taxed even if I've sold the property since?
Yes - Section 23(2) specifically includes it in house property income for the year of receipt, regardless of whether the assessee still owns the property at that time.
Is there any deduction available on arrears/unrealised rent received?
Yes - a flat 30% deduction is allowed on the amount of arrears of rent or unrealised rent received, under section 23(3).
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Talk to our tax team about this sectionLast updated 9 October 2026