Loss from House Property: Income Tax Treatment
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Loss from House Property is a fairly popular scenario and commonly arises while filing the Income Tax Return. In this article, we would mainly be focussing on the Reason for Loss from House Property and the Income Tax treatment of the same.
The Income/ Loss from House Property are computed in the following manner:-
Reason for Loss from House Property
There can be 2 reasons for Loss under head House Property:-
- In case of Self Occupied Property , the Gross Annual Value will be Nil. From this Gross Annual Value (which is Nil), Municipal taxes and Interest on Loan would be reduced which would ultimately result in a Loss arising under head House Property. (In case of Home Loan for Self Occupied property, the maximum deduction under Section 24 for Interest on Home Loan would be Rs. 1.5 Lakhs only)
- In case of other type of Property , the Gross Annual Value will not be Nil. However, if the Deductions claimed are more than the Gross Annual Value, this would again result a Loss arising under the head House Property.
- Recommended Read: Deductions from House Property allowed under Income Tax Act
Treatment of Loss from House Property for Tax purposes
Set-off of Loss from House Property
The Loss from House Property is allowed to be set-off against any other Income arising during the same year. Therefore, if there is a loss under head House Property, and there is Income under any of the other 5 heads of Income i.e. Salary/ House Property/ Business or Profession/ Capital Gains/ Other Sources, this loss from House Property can be adjusted against such income.
The net income so computed after set-off of Loss under head House Property would be taxable as per the Income Tax Slabs
Carry-forward of Loss from House Property
In case the Loss from House Property has not been adjusted in the same year, such loss will be carried forward to the next year and allowed to be set off with income arising other the same head i.e. House Property.
It should be noted while setting off the Loss under head House Property in the same year, it can be set-off with any other head of income but in case the loss is being carried forward to the next assessment year, it can only be set-off against incomes arising under the same head i.e. Income from House Property only.
Such Loss from House Property is allowed to be carried forward for a maximum of 8 assessment years. Such carry forward of Loss would be required to be shown in the Income Tax Return.
Relevant Point regarding Loss from House Property
Although the Loss from House Property is allowed to be carried forward for 8 assessment years, such loss should be set off in the subsequent assessment year if there is income under head House Property. The balance which has not been set-off shall be carried forward to the next assessment year.
In other words, the taxpayer cannot keep carrying forward the loss from House Property for 8 assessment years as per his own wish and he would be required to adjust the loss in that year itself in which there is income under head house property.
If the taxpayer does not set-off the loss against the income, such losses will not be allowed to be set-off at a future date. [Tyrosoles (India) v CIT (1963)49ITR 515 (Mad)]
Budget 2017 Update: A new sub-section (3A) has been inserted to Section 71 which has now put a restriction to maximum amount of loss from house property that can be set off with Incomes under other heads. This restriction is of Rs. 2 Lakhs i.e. Loss from House Property of only Rs. 2 Lakhs p.a. is allowed to be set off with Incomes under from other Heads.
The unabsorbed loss which has not been set off is allowed to be carried forward for set-off in future years as per the existing provisions of the Income Tax Act which have been mentioned above.
Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.