House owners facing unpaid rent from defaulting tenants can claim relief under the Income-tax Act, 2025. According to reports from Mint, Section 21(4) of the Income Tax Act, 2025 specifically deals with rent that cannot be realised by the owner. The detailed conditions for treating rent as 'unrealised rent' are elaborated in Rule 21 of the Income-Tax Rules, 2026. This provision allows property owners to exclude unpaid rent from their taxable income when specific conditions are met.
As reported by Mint, the tenancy must be bona fide, meaning it should be legitimate and not fake or artificially created to claim tax benefits. The defaulting tenant must have vacated the property, or steps must have been taken to compel the tenant to vacate the property. Additionally, the tenant should not be in occupation of another property belonging to the owner. The owner must have taken appropriate legal steps to recover the unpaid rent, or should be in a position to satisfy the assessing officer that legal proceedings will be futile.
According to Mint, suppose a landlord rents out a flat for ₹25,000 per month and the tenant skips payment for four months, amounting to ₹1 lakh in unrealised rent. The landlord can claim this ₹1 lakh as unrealised rent deduction while filing taxes, lowering taxable rental income. If the tenant clears the pending dues two years later, the recovered amount becomes taxable in that financial year. As reported by Mint, any amount recovered in the future will be taxable in the year of receipt, subject to a 30% standard deduction.
Mihir Tanna, Associate Director (Direct Tax), S K Patodia & Associates LLP, explained that unrealised rent from a tenant is eligible for deduction provided the defaulting tenant has vacated the property or necessary steps have been taken to compel them to vacate. According to Mint, while unpaid rent can be excluded from current taxable income if conditions are satisfied, any amount recovered in the future will be taxable in the year of receipt, subject to a 30% standard deduction. Tanna emphasized that landlords should maintain proper records and evidence of tenant's default and legal steps taken for recovery.
