Rule 21 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 21 of the Income-tax Rules, 2026 allows rent to be treated as unrealisable under section 21(4) only where four conditions are satisfied together.
The measure
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 the four conditions below are met. The 1962 parallel is rule 4.
Two separate hurdles are built into the opening words of rule 21 before the conditions are even reached. The rent must have been receivable — an amount the assessee was entitled to and had brought into the computation — and it must be proved to be lost and irrecoverable. A rent that was never legally due, or that is merely overdue and still being pursued, satisfies neither.
The four conditions
| # | Condition | What it tests |
|---|---|---|
| (a) | The tenancy is bona fide | That the letting was genuine and at arm's length, not an arrangement created to generate a deduction |
| (b) | The defaulting tenant has vacated, or steps have been taken to compel him to vacate the property | That the owner is not continuing to allow occupation while claiming the rent as lost |
| (c) | The defaulting tenant is not in occupation of any other property of the assessee | That the relationship has actually ended, across the owner's whole portfolio |
| (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 | That recovery was genuinely pursued, or was genuinely pointless |
All four operate together. Failing any one of them leaves the rent taxable, however genuine the loss.
The two conditions with an alternative
Conditions (b) and (d) are each drafted with a fallback, and that drafting is what makes rule 21 workable:
- Condition (b) does not require the tenant to have gone. "Steps have been taken to compel him to vacate" is enough — eviction proceedings, a notice to quit, or a possession suit still pending will satisfy it while the tenant remains in occupation.
- Condition (d) does not require a suit in every case. The assessee may instead satisfy the Assessing Officer that legal proceedings would be futile — the classic case being a tenant who has disappeared, become insolvent, or against whom a decree would plainly be unenforceable.
The words are "satisfies the Assessing Officer". That puts a positive burden on the assessee, and it is discharged with evidence — a traced-and-untraceable report, an insolvency order, correspondence returned undelivered, a legal opinion on enforceability. A statement in the return that recovery was considered pointless does not engage the alternative in condition (d) of rule 21.
Condition (c) — the whole-portfolio test
Of the four, condition (c) is the one most often overlooked, because it looks beyond the property in question. A landlord with several premises who lets one to the defaulting tenant and continues to let him another fails the condition, even if the second tenancy is fully paid up and unrelated. The rationale is straightforward: while the tenant remains in the owner's premises elsewhere, the owner retains leverage, and the rent is not yet demonstrably irrecoverable.
Worked example
| Facts | Position under rule 21 |
|---|---|
| Tenant of eleven months' standing stops paying; owner files an eviction suit; tenant still in occupation | Condition (b) satisfied — steps taken to compel vacation |
| Same tenant also occupies the owner's shop, paying rent regularly | Condition (c) fails |
| Tenant absconds; letters returned undelivered; police complaint filed | Condition (d) can be met on the futility limb, with evidence |
| Owner writes off the rent without any recovery step or evidence of futility | Condition (d) fails |
| Property let to a relative at a nominal rent, never collected | Condition (a) — the bona fides of the tenancy are in question |
| Rent overdue by four months, tenant in occupation, negotiations continuing | Not yet proved to be lost and irrecoverable |
Compliance checklist
- Confirm the rent was receivable and had entered the computation.
- Document the bona fides of the tenancy — agreement, rent history, arm's length terms.
- Record the vacation or the steps taken to compel it, with dates.
- Check the tenant against the owner's entire portfolio for any other occupation.
- Either institute recovery proceedings or assemble evidence that they would be futile.
- Keep the futility evidence in a form that can satisfy the Assessing Officer.
- Claim only the amount proved to be lost and irrecoverable, not the whole arrears.
- Revisit the position if any part is later recovered.
Common mistakes
- Claiming while the tenant occupies another property of the same owner.
- Asserting futility without evidence.
- Treating arrears as irrecoverable while negotiations continue.
- Waiting for the tenant to vacate when steps to compel are sufficient.
- Claiming on a tenancy whose bona fides cannot be shown.