Rule 21 — Unrealised rent. Made under s.21 of the Income-tax Act, 2025.
Rule 21 gives effect to Section 21 of the Income-tax Act, 2025. A rule cannot go beyond the section it serves: where the two seem to differ, the section governs.
The rule fixes what counts as rent the owner cannot realise for the purposes of section 21(4). The amount is the rent receivable by the assessee but not paid by a tenant, and proved to be lost and irrecoverable, and it counts only where all four conditions in clauses (a) to (d) are met: the tenancy is bona fide; the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property; the defaulting tenant is not in occupation of any other property of the assessee; and the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent, or satisfies the Assessing Officer that legal proceedings would be futile.
Section 21(4) allows the rent an owner cannot realise to be left out, but says nothing about when rent is properly treated as unrealisable. Without a test, an owner could simply not collect from a related tenant and claim the shortfall. The four conditions make the claim turn on evidence of a genuine letting, a real default, and real recovery effort.
The four conditions are cumulative, joined by "and" before clause (d), so failing any one of them defeats the claim however clear the default. Two of them look past the defaulting tenancy itself: the tenant must not be in occupation of any other property of the same assessee, and the tenancy must have been bona fide to begin with. Clause (d) offers a way out of litigation, but not a way out of proof; the assessee must satisfy the Assessing Officer that proceedings would be futile, which is a finding on evidence and not a matter of assertion. The rule fixes the amount as the rent receivable but not paid and proved lost and irrecoverable, so a debt still being pursued with a real prospect of recovery is not within it.
An owner lets a shop and the tenant stops paying after eight months, leaving Rs 1,20,000 unpaid. The tenant has vacated, is not occupying any other property of the owner, and the owner has filed a recovery suit. The tenancy being bona fide, all four conditions in clauses (a) to (d) are met and the Rs 1,20,000 is the amount the owner cannot realise for section 21(4). Had the same tenant moved into another shop of the same owner, clause (c) would have failed and no part of the amount would qualify.
You meet it when computing income from house property in a return where rent has gone uncollected, and in the Assessing Officer's queries on the tenancy, the vacation of the property and the recovery steps taken.
the amount of rent which the owner cannot realise shall be equal to the amount of rent receivable by the assessee but not paid by a tenant of the assessee and so proved to be lost and irrecoverable
the assessee has taken all reasonable steps to institute legal proceedings for the recovery of the unpaid rent or satisfies the Assessing Officer that legal proceedings would be futile