Rule 21 of the Draft Income-tax Rules, 2026 prescribes the conditions under which unrealised rent can be claimed under Section 21(4). It clarifies that unrealised rent shall mean rent receivable but not paid by the tenant, and must be proved as lost and irrecoverable. Such deduction is allowed only if the tenancy is bona fide, the defaulting tenant has vacated or eviction steps have been initiated, the tenant does not occupy any other property of the assessee, and the assessee has taken reasonable legal steps to recover the rent or demonstrates that such proceedings would be futile.
Rule 22 lays down the method for computing aggregate average advances of rural branches of a scheduled bank for the purposes of Section 31(1). It requires monthly outstanding advances of each rural branch to be aggregated, averaged for the relevant months, and then consolidated across branches. Definitions of “rural branch” and “scheduled bank” are aligned with the Act.
Extract of Rule No. 21 of Draft Income-tax Rules, 2026
Rule 21
Unrealised rent.
For the purposes of section 21(4), 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 where, —
(a) the tenancy is bona fide;
(b) the defaulting tenant has vacated, or steps have been taken to compel him to vacate the property;
(c) the defaulting tenant is not in occupation of any other property of the assessee;
(d) 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.
Extract of Rule No. 22 of Draft Income-tax Rules, 2026
Rule 22
Computation of aggregate average advances for the purposes of Section 31(1) (Table: Sl. No.1)] of the Act
(1) For the purposes of section 31(1)[Table: Sl No 1] of the Act, the aggregate average advances made by the rural branches of a scheduled bank shall be determined as follows:
(a) the amounts of advances made by each rural branch as outstanding at the end of the last day of each month comprised in the tax year shall be aggregated separately;
(b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into account for the purposes of clause (a);
(c) the aggregate of the sums so arrived at in respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank.
(2) In this rule, “rural branch” and “scheduled bank” have the meanings specified in the Section 66(26) and section 2(98) of the Act respectively.
