Taxability of Arrear Rent – Under Income from House Property

Arrear Rent refers to the rent of the prior period received in the current year due to reasons like increase in the amount of rent with retrospective effect etc. Section 25B of the Income Tax Act 1961(the Act) provides the taxability of arrear rent which states that arrears of rent received on or after 01.04.2000 will be chargeable to tax under the head “Income from House Property” in the year of receipt if the same has not been charged to tax in the earlier years irrespective of the fact whether the recipient continues to be the owner or not in the year of receipt of rent.

Section 25B of the Act provides as follows:

  • The taxpayer is (or was) the owner of any property consisting of any buildings or lands appurtenant thereto which has (or had) been let to a tenant.
  • He has received any amount, by way of arrears of rent from such property, not charged to income tax for previous years.
  • The amount so received (after deducting a sum equal to 30 per cent of such amount) shall be deemed to be the income chargeable under the head “Income from House Property.”
  • It is taxable in the previous year in which it is received.
  • It is taxable even if the assessee is not the owner of that property in the year in which he has received arrears of rent.

Since section 25B was introduced with effect from the assessment year 2000-2001, the arrear rent actually received on or before 31.03.2000 is not taxable in the year in which it is received.

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