Carry Forward and Set Off of Loss from House Property

Investment in real estate is a common way to generate wealth, but sometimes, property owners face losses due to various factors such as vacant rental properties, high loan interest, or maintenance costs. Understanding how to carry forward and set off such losses can help taxpayers optimize their income tax liability. In this guide, we will delve into the provisions under Section 71B of the Income Tax Act, which govern the carry forward and set off of loss from house property.

Understanding Loss from House Property

Under the Income Tax Act, income from house property is computed after deducting municipal taxes, standard deductions, and home loan interest. If the net result is a negative value, it is termed as Loss from House Property. This loss can be set off against other income heads or carried forward to future years as per the provisions of Section 71B.

Set Off of Loss from House Property

• In the Same Assessment Year: Loss from house property can be set off against income from other heads such as salary, business income, capital gains, or other sources up to a maximum of ₹2,00,000 per year.

• Any unadjusted loss beyond this limit can be carried forward to subsequent years.

Carry Forward of Loss from House Property (Section 71B)

If the entire loss cannot be set off in the same year due to insufficient income, the unabsorbed loss can be carried forward for up to 8 assessment years. The key provisions include:

1. Carry Forward Limit: Loss from house property can be carried forward for a maximum of 8 assessment years.

2. Set Off Against House Property Income: The carried forward loss can be adjusted only against future income from house property.

3. No Further Carry Forward if Not Set Off: If the loss is not fully set off within 8 years, it cannot be carried forward further and lapses.

Example to Illustrate Carry Forward of Loss

Consider Mr. Raj, who owns a house property and incurs a loss of ₹3,00,000 due to home loan interest and maintenance expenses. His total taxable income from other sources in the same year is ₹1,50,000.

• Step 1: Set Off in the Same Year

  • Loss from house property: ₹3,00,000

  • Maximum allowable set off: ₹2,00,000

  • Set off against other income: ₹1,50,000

  • Remaining unadjusted loss: ₹1,50,000

• Step 2: Carry Forward to the Next Year

  • The balance ₹1,50,000 will be carried forward and can be set off against income from house property in the next 8 years.

Key Points to Remember

• Filing of ITR is Mandatory: To carry forward losses, taxpayers must file their Income Tax Return (ITR) on or before the due date.

• Loss Can Only Be Set Off Against House Property Income: The carried forward loss cannot be adjusted against any other income head.

• Interest Deduction Limit: Interest on home loans for self-occupied property is limited to ₹2,00,000, whereas for let-out property, the entire interest is deductible.

Conclusion

Proper tax planning and understanding of Section 71B can help property owners optimize their tax liability and make effective use of losses. If you are facing house property losses, ensure you file your returns timely and set off the loss against eligible income in the following years.

For expert assistance with tax planning and compliance, consult a professional chartered accountant today!