Taxation of Rent Received by way of enhancement or arrears
The provisions of rent arrears described under section 25B of Income Tax act exclusively deals with assessing conditions of arrears of rent received in the current financial year.
Section 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.
Analysis of Section 25B
Meaning: Arrears of rent means the incremental rent relating to earlier financial years which has not been offered to tax in those financial years, but received during the current financial year.
Chargeability: Receipt of arrears of rent will be chargeable to tax under the head income from house property only.
Year of taxability: It is taxable as income of the financial year in which he receives the arrears of rent.
Non-subsistence of ownership: It is taxable in the hands of the individual even if he does not own the property at the receipt of arrears of rent.
Deduction: A standard deduction of 30% of the amount arrears received will be allowed as deduction.
In simple words we can say, any amount received as arrears of rent 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.
Example: Let’s take example that Mr X has received arrears of rent of which he had been let out. The tenant had not paid the rent for a period of almost 2 years. The above amount received in Dec.2012. 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 2013-14 as rent received by x on Dec. 2012. 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.