Tax Provisions of Rent Arrears

In this article, we will discuss about the tax provisions of rent arrears received in current financial year of due from  previous years. The majority of the tax payers are confused how it is taxable, In which Asstt. year arrears of rent is taxable, is there any interest payable on income tax for default of assessed income. Let’s discuss some of the important points regarding taxability of arrears of rent received.

The provisions of rent arrears described under section 25B of Income Tax act. The section 25B exclusively deals with assessing conditions of arrears of rent received in the current financial year.

Section 25B of Income Tax Act.

25B. Special provisions for arrears of rent received.

Where the assessee-
(a) is the owner of any property consisting of any building or land appurtenant thereto which has been let to a tenant; and
(b) has received any amount, by way of arrears of rent from such property, not charged to income-tax for any previous year, the amount so received, after deducting (a sum equal to thirty per cent of such amount), shall be deemed to be the income chargeable under the head “income from house property” and accordingly charged to income-tax as the income of that previous year in which such rent is received, whether the assessee is the owner of that property is that year or not.

This is a special provision for assessing arrears of rent when received. It lays down that where the owner of the property received any amount, by way of arrears of rent from such property, the amount so received, after deducting a sum equal to one-fourth of such amount for repairs of, and collection of rent from, the property, shall be deemed to be the income chargeable under the head ‘income from house property’ as the income of the previous year in which such rent is received.

In simple words we can say, any amount received as arrears of rnet from a property consisting of any building or land appurtenant thereto which has not been charged to income tax in any previous year shall be taxable in the previous year in which the same is received.

Let’s take one example
Mr X have received arrears of rent of which he had been let out. The tenant had not paid the rent for a period of almot 2 years. The above amount received in Dec.2009. Now find out the taxability of rent arrears and in which it will be assessed.

Solution:

• The arrears of rent would be taxable in the Asst. Year 2010-11 as rent received by x on Dec. 2009. See Assessment year, and Previous year.
• However, X is entitled to get statutory deduction of 30 per cent.
• The arrears of rent received would be taxable as income from house property.

Related posts:

1. TDS on Rent Old and New Provisions
2. Composite Rent And Tax Treatment
3. Calculation of House Rent Allowance (HRA) Exemption
4. Tax Implications on Second House Property
5. Changes in Taxation of Income from House Property