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Taxation · Income from House Property

Arrears of Rent and Unrealised Rent Recovered: Taxation under House Property

Updated 4 October 2026 · Fact-checked

Arrears of rent not taxed earlier, and unrealised rent that you recover later, are taxed as income from house property in the tax year you receive them. You get a flat 30% deduction on the amount received. Taxable amount = receipt × 70%. This applies even if you no longer own the property.

Understand Arrears of Rent and Unrealised Rent Recovered

Income from house property is normally taxed on the annual value of the property for each tax year. Two situations fall outside this routine. In the first, rent for earlier years was never received and never taxed. In the second, rent was unrealised, you reduced it from the annual value in an earlier year, and you now recover it.

The law solves both with one special rule. The money is taxed as income from house property in the tax year in which you receive it. The tax year it relates to does not matter. This is a rule of receipt, not of accrual.

The law also gives a flat deduction of 30% of the amount received. It stands in for all expenses. You cannot also claim repairs, collection charges, municipal taxes or interest against this amount. The 30% applies even if you spent nothing.

It does not matter whether you still own the property in the year of receipt. If you sold the house last year and the tenant pays old arrears this year, you are still taxed on 70% of the receipt.

Keep two things apart. Current-year rent is computed by the normal annual value method. Arrears or recovered unrealised rent is a separate item that you add to it. It is never part of the current year's gross annual value.

Key rules to remember

Taxable arrears or recovered unrealised rent
Taxable amount = Amount received − 30% of amount received = 70% of amount received
The 30% deduction is flat and applies on the full receipt. No other deduction is allowed against it.
Year of taxability
Taxed in the tax year of receipt, under the head Income from House Property
The year the rent relates to is irrelevant. Ownership in the year of receipt is also irrelevant.
Condition for arrears
Arrears are taxable only if the rent was not charged to tax in any earlier year
If it was already taxed in an earlier year, it is not taxed again.
Unrealised rent recovered
Unrealised rent allowed as a reduction in an earlier year, when recovered → taxable at 70% in the year of recovery
Applies only to rent that was earlier allowed as unrealised and has now been recovered.
Total house property income in the year
Income from current-year property (normal computation) + 70% of arrears or recovered unrealised rent
Compute the two parts separately, then add.

How to solve Arrears of Rent and Unrealised Rent Recovered questions

Use this method for any question that mentions arrears of rent or recovery of unrealised rent.

  1. 1Identify the receipt. Is it arrears of rent never taxed before, or unrealised rent recovered that was earlier allowed as a reduction?
  2. 2Note the tax year in which the money was actually received. This is the year of taxability.
  3. 3Check that arrears were not taxed earlier. For unrealised rent, check that it was earlier excluded from the annual value.
  4. 4Ignore who owns the property now. Ownership in the year of receipt does not matter.
  5. 5Calculate the 30% flat deduction on the full amount received. Do not deduct any other expense.
  6. 6Taxable amount = receipt − 30% of receipt (that is, 70% of receipt).
  7. 7Compute the current-year house property income separately by the normal method.
  8. 8Add the two figures. Show each part in your answer.

Quickest way: Receipt × 70% and add separately

When to use it: Use this in MCQs and in the written computation when time is short.

  1. Underline the word 'received' and the tax year of receipt. If it fell in a different tax year, it is outside this question.
  2. Multiply the receipt by 70%. This is the answer for the arrears part.
  3. Do not touch the amount for repairs, municipal tax or interest. They belong only to the current-year computation.
  4. In written answers, use three headings: current-year income, arrears or recovered rent (receipt, less 30%, taxable) and total. This format earns step marks even if one number is wrong.
  5. In MCQs, eliminate options that deduct actual expenses, that tax 100% of the receipt, or that spread the arrears over earlier years.

Common mistakes in Arrears of Rent and Unrealised Rent Recovered

  • Spreading the arrears over the earlier tax years they relate to.

    Students assume income is taxed on accrual, as in business income.

    Fix: Tax the whole receipt in the tax year of receipt. Do not revise earlier years.

  • Allowing repairs or municipal tax against the arrears.

    Students treat arrears like normal rent, where those deductions are linked to annual value.

    Fix: Only the flat 30% is allowed on arrears. Do not add any other deduction.

  • Not taxing arrears because the property was sold before receipt.

    Students think the owner alone is taxed.

    Fix: The receipt is taxed in the receiver's hands in the tax year of receipt, even if the property is no longer owned.

  • Adding arrears to the current year's gross annual value before computing the 30% standard deduction.

    Students merge the two items into one computation.

    Fix: Compute current-year income separately. Add the 70% arrears figure at the end.

  • Taxing arrears again that were already taxed through annual value in an earlier year.

    Students forget the condition that arrears must not have been charged to tax earlier.

    Fix: Read the facts. Tax it as arrears only if it was not taxed before.

  • Taking the 30% on the net amount after collection costs.

    Students try to be precise with actual expenses.

    Fix: Apply 30% to the full gross amount received. Actual costs are ignored.

Worked examples

Example 1

Mr. Rao sold his let-out house in the tax year 2025-26. In the tax year 2026-27 he received ₹2,40,000 from the former tenant as arrears of rent for earlier years. This rent was never taxed before. He incurred ₹15,000 on legal expenses to recover it. Compute the amount chargeable to tax under Income from House Property for the tax year 2026-27.

Show the solution
  1. The receipt is arrears of rent, not taxed earlier. It is taxable in the tax year of receipt, 2026-27.
  2. Ownership in 2026-27 is irrelevant, so the earlier sale does not exempt it.
  3. Amount received = ₹2,40,000.
  4. Flat deduction at 30% = ₹72,000.
  5. The legal expense of ₹15,000 is not allowed separately.
  6. Taxable amount = ₹2,40,000 − ₹72,000 = ₹1,68,000.

Answer: ₹1,68,000 is taxable as Income from House Property for the tax year 2026-27.

Example 2

Ms. Meena owns a let-out house. For the tax year 2026-27 its gross annual value is ₹3,60,000 and municipal tax of ₹20,000 was paid by her during the year. In the same year she recovered ₹1,00,000 of unrealised rent, which had been allowed as a reduction in an earlier year when computing annual value. Compute her income from house property for the tax year 2026-27. Ignore interest on borrowed capital.

Show the solution
  1. Current-year property: Gross annual value = ₹3,60,000.
  2. Less municipal tax paid = ₹20,000. Net annual value = ₹3,40,000.
  3. Standard deduction at 30% of net annual value = ₹1,02,000.
  4. Income from the current-year property = ₹3,40,000 − ₹1,02,000 = ₹2,38,000.
  5. Unrealised rent recovered = ₹1,00,000, taxable in 2026-27.
  6. Less 30% = ₹30,000, so taxable amount = ₹70,000.
  7. Total income from house property = ₹2,38,000 + ₹70,000 = ₹3,08,000.

Answer: Income from house property for the tax year 2026-27 is ₹3,08,000.

Exam tips

  • Look for the verbs 'received later' or 'recovered'. They signal the 70% rule. Anchor your answer on the year of receipt.
  • Always show the arrears computation as a separate block. It earns step marks and avoids mixing it with annual value.
  • In MCQs, the common wrong options are 100% of receipt, receipt less actual expenses, and zero tax because the property was sold. Eliminate them.
  • Check the facts for any earlier taxation of the same rent. If it was taxed earlier, do not tax it again as arrears.
  • State the rule in one line in written answers: 'Taxable in the year of receipt under house property, after a flat 30% deduction.'

Practice questions from Income from House Property

Arrears of Rent and Unrealised Rent Recovered in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Arrears of Rent and Unrealised Rent Recovered: frequently asked questions

In which year are arrears of rent taxable?

They are taxable in the tax year in which you receive them. The year the rent relates to does not matter. You do not reopen earlier years.

How much deduction is allowed on arrears of rent?

A flat 30% of the amount received. No other deduction such as repairs, collection charges or municipal tax is allowed against it.

Is arrears of rent taxable if I have sold the house?

Yes. The receipt is taxed in the tax year of receipt under house property, even if you no longer own the property. The 30% deduction still applies.

How is unrealised rent recovered taxed?

If unrealised rent was earlier allowed as a reduction in computing annual value and you recover it later, it is taxed in the year of recovery as house property income. You get the same 30% deduction on the amount recovered.