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Direct and Indirect Taxation · Income from House Property

Co-owners, Arrears of Rent and Unrealised Rent

Updated 10 October 2026 · Fact-checked

Arrears of rent and unrealised rent recovered are taxed in the tax year of receipt under Income from house property, after a flat 30% deduction, even if you no longer own the property. Co-owners with definite shares compute income separately, each by share. Municipal taxes are deducted only if the owner actually paid them in the tax year.

Understand Special Cases: Co-owners, Arrears and Unrealised Rent

Normal house property income is computed on the annual value of the property for the tax year. Some rent, however, reaches you in a different year from the one it relates to. The Act has special rules for this.

Arrears of rent is rent that is due for an earlier period but received now. Unrealised rent is rent that you earlier could not recover from the tenant and excluded from the actual rent (section 21(4)), but realise later. Both are deemed income from house property of the tax year in which you receive or realise them (section 23(1)).

These amounts are taxed even if you are no longer the owner in that tax year (section 23(2)). A flat deduction of 30% of the amount is allowed (section 23(3)). No other deduction, such as actual repairs or collection costs, is allowed against it.

Co-owners. If a property is co-owned and each owner's share is definite and ascertainable, the co-owners are not taxed as an association of persons. Each computes income separately for his own share and includes it in his own total income (section 24(1)). Each co-owner gets the self-occupied relief under section 21(6) as if he alone were entitled to it (section 24(2)).

Municipal taxes. Taxes levied by a local authority reduce the annual value only if the owner actually paid them during the tax year, whenever they became payable (section 21(3)). Unpaid taxes get no deduction, and taxes paid by a tenant are not the owner's deduction.

Key rules to remember

Arrears or unrealised rent taxable
Taxable amount = Amount received or realised − 30% of that amount = 70% of the amount
Taxed in the tax year of receipt under Income from house property. Section 23(1) and (3).
Timing rule
Taxable in the tax year of receipt or realisation, whether or not you are still the owner
Section 23(1) and (2). Do not tax it in the earlier year to which the rent relates.
Net annual value
Net annual value = Annual value − municipal taxes actually paid by the owner in the tax year
Section 21(3). Payment decides the deduction, not the year of liability.
Co-owned property
Each co-owner's income = computed on his own share, if shares are definite and ascertainable
Section 24(1). Each can claim the self-occupied nil annual value relief under section 21(6).
Unrealisable rent
Rent that cannot be realised is excluded from actual rent received or receivable
Section 21(4), subject to the rules made. When recovered later, section 23 applies.

How to solve Special Cases: Co-owners, Arrears and Unrealised Rent questions

Use this order for any question mixing current-year house property income with arrears, unrealised rent or co-ownership.

  1. 1Identify whether the property is co-owned. If shares are definite, work out the income for one owner's share only.
  2. 2Compute the annual value of the property for the tax year in the usual way, including any vacancy or unrealised rent adjustment.
  3. 3Deduct municipal taxes only to the extent the owner actually paid them in this tax year.
  4. 4Apply the other deductions for current-year income as required by the question.
  5. 5Separately take any arrears of rent or unrealised rent received in this tax year and deduct 30% of it.
  6. 6Add the 70% balance to the current-year income, even if the property was sold or the owner has changed.
  7. 7Check that you have not claimed any extra deduction against the arrears and give the final figure for the owner's share.

Quickest way: Arrears are 70%, municipal tax is paid-only

When to use it: When time is short in a numerical with several rent and tax facts.

  1. Underline each receipt: current rent, arrears, recovered unrealised rent.
  2. Multiply arrears and recovered unrealised rent by 0.70 and keep them aside.
  3. Cross out municipal taxes not paid in this tax year.
  4. For co-owners, multiply property figures by the ownership share before moving on.
  5. Add the 70% figures to the current-year computation and total.

Common mistakes in Special Cases: Co-owners, Arrears and Unrealised Rent

  • Taxing arrears in the year to which the rent relates.

    Students follow the accrual idea used for normal rent.

    Fix: Tax arrears and recovered unrealised rent only in the tax year of receipt or realisation.

  • Allowing repairs or collection charges in addition to the 30% deduction.

    Students apply the usual deductions again.

    Fix: Only the flat 30% is allowed on arrears and unrealised rent.

  • Ignoring arrears because the property was sold.

    Students think ownership is needed in the year of receipt.

    Fix: Section 23(2) taxes it whether or not you own the property that year.

  • Deducting municipal taxes that are due but unpaid.

    Students treat them as an accrued expense.

    Fix: Deduct only taxes the owner actually paid during the tax year, even if they relate to earlier years.

  • Taxing co-owned property on the full value in one owner's hands.

    Students forget that definite shares are assessed separately.

    Fix: Compute the whole property, then take the owner's share, and give each co-owner the self-occupied relief separately.

Worked examples

Example 1

Mr. Rao received ₹1,40,000 in the tax year 2026-27 as arrears of rent from a tenant. The arrears relate to earlier years. He sold the property in 2025-26. Compute the amount taxable as Income from house property for this receipt.

Show the solution
  1. Arrears are deemed income of the tax year in which they are received, so 2026-27.
  2. Sale of the property does not matter, as ownership in the year of receipt is not required.
  3. Deduction at 30% = 30% × ₹1,40,000 = ₹42,000.
  4. Taxable amount = ₹1,40,000 − ₹42,000 = ₹98,000.

Answer: ₹98,000 is taxable under Income from house property for the tax year 2026-27.

Example 2

Ms. Meera and Mr. Arun own a let-out house in equal definite shares. Annual value is ₹6,00,000. Municipal taxes levied are ₹50,000, of which ₹40,000 was paid by the owners in the tax year. In the same year they together recovered ₹20,000 of unrealised rent, excluded earlier. Ignoring other deductions, find Meera's income from this property on these facts.

Show the solution
  1. Shares are definite, so each is taxed separately on a 50% share.
  2. Net annual value = ₹6,00,000 − ₹40,000 (paid) = ₹5,60,000. The unpaid ₹10,000 is not allowed.
  3. Meera's share = 50% × ₹5,60,000 = ₹2,80,000.
  4. Unrealised rent recovered, her share = ₹10,000. Less 30% = ₹3,000, leaving ₹7,000.
  5. Total = ₹2,80,000 + ₹7,000 = ₹2,87,000.

Answer: Meera's income from this property on these facts is ₹2,87,000.

Exam tips

  • Write the section 23 logic in one line: tax year of receipt, 30% deduction, owner or not.
  • In MCQs, watch for options with 100% of arrears or with extra repairs; both are traps.
  • Underline the word paid in municipal tax facts. Unpaid tax gets no deduction.
  • For co-owners, state that shares are definite and ascertainable before splitting the income.
  • Show the 30% deduction as a separate line to earn step marks.

Practice questions from Income from House Property

Special Cases: Co-owners, Arrears and Unrealised Rent in other exams

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

Special Cases: Co-owners, Arrears and Unrealised Rent: frequently asked questions

What is the difference between arrears of rent and unrealised rent?

Arrears of rent is rent for an earlier period received late. Unrealised rent is rent you could not recover and excluded from actual rent earlier, but recovered later. Both are taxed in the tax year of receipt with a 30% deduction.

Is the 30% deduction on arrears available with other deductions?

The 30% of the arrears or unrealised rent is the only deduction against that amount. Other deductions apply to the current-year income of the property, not to this receipt.

Are co-owners taxed as an association of persons?

Not when each co-owner has a definite and ascertainable share. Each computes his own income by share and includes it in his own total income. Each also gets the self-occupied relief separately.

Can I deduct municipal taxes that I have not paid?

No. Municipal taxes levied by a local authority are deducted only if the owner actually paid them in the tax year. The year in which they became payable does not matter.