Provisions for Arrears of Rent and Unrealized Rent Received Subsequently Section 25A
Most of the people remain tensed these days as in some of the cases the rentals could not be recovered due to tenants lost their jobs or in case of commercial properties businesses are suffering losses due to pandemic. But there is a sign of relief at least from the taxation point of view. The following are some points which will make you understand the taxation provision in this regard:
- As per section 25A(1) rent is taxable under the head “income from house property” in the year in which it is realized/received.
- Section 25A(2) provides a deductions @30% of arrears of rent or unrealized rent realized by the assessee.
- It is taxable even if assessee is not the owner of the property in the financial year of the realization.
Let’s understand this with an example:
Mr. Sharma sold his residential house property in March 2020. In June 2020 he recovered rent of Rs. 10,000 from Mr. Suri, to whom he had let out his house for 2 years from April 2014 to March 2016. He could not realize 2 months rent of Rs. 20,000 from him and to that extent his actual rent was reduced while computing income from house property for assessment year 2016-17.
Further, he had let out his property from April 2016 to February 2020 to Mr. Raju. In April 2018 he had increased the rent from Rs. 12,000 to Rs. 15,000 per month and the same was a subject matter of dispute. In September, 2020, the matter was finally settled and Mr. Sharma received Rs. 69,000 as arrears of rent for the period April 2018 to February 2020.
Would the recovery of unrealized rent and arrears of rent be taxable in the hands of Mr. Sharma and if so in which year?
Since the unrealized rent was recovered in the previous year 200-21, the same would be taxable in the assessment year 2021-22 under section 25A, irrespective of the fact that Mr. Sharma was not the owner of the house in that year. Further, the arrears of the rent were also received in the previous year 2021 and hence the same would be taxable in the assessment year 2021-22 under section 25A, even tough Mr. Sharma was not the owner of the house in that year. A deduction of 30% of unrealized rent recovered and arrears of rent would be allowed while computing income from hose property of Mr. Sharma for assessment 2020-22
Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in what so ever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.