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 clearly defines the taxability of arrear rent received.

Any amount received as arrears of rent on or after 01.04.2000, not charged to income-tax for any PY (earlier years), then amount so received after allowing deduction of 30% of such amount, will be taxable under the head “Income from House Property” in the year in which rent is received, irrespective of the fact whether the assessee is the owner of that property or not.

But in case, the arrear rent actually received is on or before 31.03.2000, then the same is not taxable in the year of its receipt.

Relevant points to understand it better

• The taxpayer is the owner of the property consisting of any buildings or lands appurtenant thereto which has been let out to a tenant.
• He has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year.
• It is taxable in the previous year in which it is received, even if the assessee is not the owner of that property in that year.

• The amount so received, after deducting 30 per cent of such amount shall be deemed to be taxable under the head “Income from House Property.”

Illustration

Mr. X let out his property to Mr. Y on 1/4/2008 at a monthly rent of Rs. 5000 p.m. for a period of 3 years. With the new agreement, Mr. Y was suppose to pay revised rent of Rs. 8000 p.m. X received the amount on 1/5/2011 & house was destroyed by fire on 15/04/2011.

Discuss the treatment of arrear rent so received.

Solution:

Since, Mr. X has received as arrears of rent on or after 01.04.2000, therefore the amount will be taxable under “Income from House-Property” in the year in which rent is received(1/05/2011), irrespective of the fact whether he is now the owner of that property or not.

PARTICULARS	AMOUNT(Rs.)
Arrears of rent received from 1/4/2008 – 31/03/2011	Â
(8000-5000) * 12 months * 3 years	1,08,000
Less:            Standard deduction @ 30%	(32,400)
Taxable Amount	75,600