Rule 21: Unrealised rent
Rule 21 sets the evidence and tenancy conditions for rent that the owner cannot realise for section 21(4). An unpaid amount is not automatically irrecoverable rent.
Official notified Income-tax Rules, 2026Need advice on Rule 21?
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Rule 21 - Unrealised rent
For the purposes of section 21(4), the amount of rent which the owner cannot realise shall be equal to the amount of rent receivable by the assessee but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where, — (a) the tenancy is bona fide; (b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; (c) the defaulting tenant is not in occupation of any other property of the assessee; and (d) the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be futile.
Introduction
Review each tenancy separately. The rule combines proof of loss and irrecoverability with four cumulative conditions; an accounting write-off alone does not establish them.
Rule breakdown
When this rule is relevant
Start with rent receivable from the assessee’s tenant that remains unpaid. For the section 21(4) purpose, the amount must be proved lost and irrecoverable and satisfy the listed conditions.
Keep the rent period, contractual due date, tenant identity and outstanding balance clear. Mere late payment should not be described as satisfying this rule without the remaining facts.
Bona fide tenancy and steps to recover possession
The tenancy must be bona fide. In addition, the defaulting tenant must have vacated the property or steps must have been taken to compel vacation.
A tenancy agreement, possession records and relevant notices can help explain the facts. The rule provides the alternative of steps to compel vacation; it does not insist that physical vacation has already occurred in every case.
Check occupation of other properties
The defaulting tenant must not occupy any other property of the assessee. Review the owner’s other tenancies before completing this condition.
A statement limited to the defaulted premises leaves this separate test unanswered. Keep the result of the other-property check with the rent reconciliation.
Recovery proceedings or demonstrated futility
The assessee must have taken all reasonable steps to institute legal proceedings to recover the unpaid rent, or satisfy the Assessing Officer that proceedings would be futile.
Do not replace the alternative with a general belief that litigation is inconvenient. If relying on futility, document the facts and why they support that conclusion for the Officer’s consideration.
Illustrative decision flow
Hypothetical: a tenant leaves ₹1.2 lakh unpaid and vacates. The owner has a genuine tenancy and confirms that the tenant occupies no other property of the owner. Those facts address three conditions, but the recovery-proceedings or futility requirement and proof of irrecoverability still require support.
Reconcile the claimed amount to rent receivable, test each condition and keep the evidence together. This example does not treat the amount as automatically eligible merely because the tenant left.
Key takeaways
Unpaid is not enough
Establish loss and irrecoverability as well as the four conditions.
Vacation has an alternative
Actual vacation or steps to compel vacation can satisfy the stated possession condition.
Recovery evidence matters
Reasonable steps to institute proceedings or demonstrated futility must be addressed.
Practical checklist
- Reconcile unpaid rent by tenant and period.
- Document all four conditions separately.
- Keep the recovery or futility evidence.
Avoid
- Do not equate every arrear with irrecoverable rent.
- Do not omit the other-property occupation check.
FAQs
Must the tenant already have vacated?
The rule permits either vacation or steps taken to compel the tenant to vacate, alongside the other conditions.
Is a bad-debt entry sufficient?
No. The rule requires proof of lost and irrecoverable rent and the specified tenancy, occupation and recovery conditions.
Must legal proceedings always be instituted?
The rule refers to all reasonable steps to institute proceedings, or satisfying the Assessing Officer that such proceedings would be futile.
Glossary
- Bona fide tenancy
- A genuine tenancy, as required by clause (a).
- Irrecoverable rent
- The unpaid rent proved lost and irrecoverable for the rule’s stated purpose.