How to get tax benefits on loss from house property

Asssessee can have income from different sources under the same head of income. Similarly, he may have income from different heads. Loss from any source under the same head or from any head can be set off against other sources or heads as specified under the income tax act, 1961. Our tax laws allow us to take tax benefits on loss from house property while calculating taxable income.

In case of a self occupied house property, you take net annual value as nil. If you have interest on borrowed capital as a deduction under section 24 from your net annual value, then ultimately you will have loss equal to the amount of interest on borrowed capital.

If the house property is let out or deemed to be let out, the gross annual value will not be nil. In such a case, if tax deduction under section 24 for a property is higher than the net annual value, then you will have loss.

Such loss as arrived from self occupied or let out can have tax relaxation as per conditions specified in our tax laws. In this article we will discuss how an assessee can set-off house property loss under the same head and different heads of income. You will also know how to carry forward it to subsequent years.

Current year loss from house property

If for the current previous year, you have a loss from house property for any building or land appurtenant thereto, then that can be set off against income from other house properties for the same previous year.

After such set off, if you still have loss from house property, then that is allowed to set off against income under any other head for the same previous year. This means set off can take place within the same previous year.

This means loss from house property can be set off against income under any of the 5 heads.

Example

Assume Mr X has three houses, and the net income from the first and second house is Rs 2,80,000 and Rs 2,00,000 respectively, while from the third house there is a loss of Rs 2,40,000. In this case, under section 70 of the IT act,1961, Rs 2,40,000 can be adjusted against the income of first and second property. After set off, balance amount of Rs 2,40,000 will be considered as income from house property.

Limit for loss from house property

Please note that with effect from 1/4/2018, set off of loss under the head house property against any other head of income shall be restricted to Rs 2,00,000 for any assessment year. This means, Rs 2,00,000 is the maximum loss amount that can be set off against other sources of income.

Can house property loss be carried forward to next year

Yes, you can carry forward and set off loss from house property against income under the same head up to 8 assessment years from the end of the immediate succeeding assessment year in which the loss first arose. You can carry forward it even if your tax return is filed after the due date of filing under section 139(1) but before the time limit allowed under section 139(4) of the income tax act,1961.

A tax return will be treated as belated return, if it’s not filed within the time limit allowed under section 139(1) but filed anytime before the end of the relevant assessment year or completion of assessment, whichever is earlier.

Please note, carry forward and set off is allowed only under the same head of income. This means, loss from house property can be carried forward for 8 assessment years to set off if there is income under the head house property. The balance left out after set off can be carried forward to next year up to 8 assessment years as discussed above.

If you do not set off loss against income in your return for a particular year, then such amount will not be allowed to be set off in subsequent years.

Example

Assume Mr X in the previous year 2018-19 has provided following things;

  • Income from building A – Rs 2,80,000,
  • Loss from building B – Rs 5,20,000,
  • Salary – Rs 7,00,000.

In this case, Mr X can first set off loss of building B i.e. Rs 5,20,000 against income of building B i.e. Rs 2,80,000. After set off, the net amount left out is Rs 2,40,000. Now Mr X is eligible to set off this house property loss of Rs 2,40,000 against his salary. However, with effect from 1/4/2018, house property loss is allowed up to Rs 2,00,000 to get set off with income under other heads. Due to this, Mr X will be allowed to set off to the extent of Rs 2,00,000 from income under the head salary. Balance amount of Rs 40,000 shall be carried forward to claim it and set off from income under the head house property up to 8 subsequent assessment years.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.