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Understanding Set-off of Loss from House Property

understanding-set-off-of-loss-from-house-property

When the income from a house property results in negative income it is called 'Loss from House Property'. The benefit attached to the 'Loss from House Property' is that it helps in reducing the taxable income since loss from house property is allowed to be set-off from other heads of income. The loss which cannot be set-off from other head of income is allowed to be carried forward and can be set-off in subsequent years.

This article discusses all the nitty-gritty of income tax rules or provisions for set-off and carry-forward of 'Loss from House Property'.


    Introduction

    Section 22 of the Income Tax Act, 1961 ("Act") is the charging section for income deriving from house property.

    Section 22 provides that Income from house property shall be taxable under this head if the following conditions are satisfied:
    a) The house property should consist of any building or land appurtenant thereto;
    b) The taxpayer should be the owner of the property;
    c) The house property should not be used for the purpose of business or profession carried on by the taxpayer.

    Types of House Property

    Under the income tax scheme of taxation of income from house property, there can be three types of house property-
    1) Self Occupied House Property
    2) Let-out House Property
    3) Deemed to be Let-out House Property

    When the owner or the taxpayer is using the house property for his own residence with or without his family or is occupied by his relatives, etc. then such a house property is taken as a self-occupied house property. Even a vacant house property is also considered as a self-occupied house property. In this case, the house property was not let-out for any part of the financial year.

    Presently, as per current law, a person can have only two self-occupied house properties.

    When a house property is let out by the owner of the house property, whether for the whole year or any part thereof, to a tenant for rent then such a house property is considered as a let-out house property

    A deemed to be let-out is a house property which is not actually let-out by the owner but is considered to have been let-out. This is a situation when a person owns more than two house properties then, as per the law, only two house properties can be considered as self-occupied house property. Rest are deemed to have been let-out for taxation purpose even if such other house properties are physically vacant.

    The computation of income from house property depends on the type of house property. Separate provisions will apply for the different types of house properties.

    Basic principles of computing Income from House Property

    The first step is to compute the 'Gross Annual Value' of the house property.

    Therefrom, deduct the Municipal Taxes paid for the property during the financial year to arrive at the 'Net Annual Value'. 

    Notes:
    1. Deduction for municipal or local taxes on the property is allowed only on payment basis irrespective of year(s) for which it is paid in the relevant financial year.
    2. Municipal taxes levied by any local authority in respect of house property is allowed as a deduction if the taxes are borne/paid by the owner.


    Annual Value of self-occupied house property

    In the case of a self-occupied house property, the 'annual value' is always taken as 'Nil'. [Section 23(2)]

    In case of more than two ['one' prior to AY 2020-21] house properties, the assessee may, at his option, choose any two of the house properties as self-occupied. When he chooses such properties, the annual value that two properties shall be taken as 'Nil'. [Section 23(4)(a)]

    In respect of other house properties, the annual value shall be determined as if such house or houses are let-out properties. [Section 23(4)(b)]

    Annual Value of let-out house property

    Gross Annual value [Sec. 23(1)]

    The Gross Annual Value of the house property shall be higher of the followings:

    a) Expected rent, i.e., the sum for which the property might reasonably be expected to be let out from year to year. Expected rent shall be higher of municipal valuation or fair rent of the property, subject to a maximum of standard rent;

    b) Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy

    Out of sum computed above, any loss incurred due to vacancy in the house property shall be deducted and the remaining sum so computed shall be deemed to the gross annual value.

    Annual Value of house properties held as stock-in-trade

    Section 23(5) prescribes the computation of the annual value of properties held as stock-in-trade. It provides that the annual value of such properties held as stock-in-trade for a period up to two years from the end of the financial year in which the completion certificate is received shall be taken as 'Nil'. After two years, the unsold stock-in-trade will be deemed to be let out house properties.

    Deductions from income from house property

    Section 24 of the Act deals with the amount to be deducted from the Net Annual Value so determined in the aforesaid manner.

    Deduction for interest on borrowed capital

    It is very important to understand the interest payable on borrowed capital for the acquisition etc. of the house property because it is the interest amount that causes the 'Loss from House Property'.

    Section 24(b) contains the provisions related to the deduction of interest amount payable on borrowed capital for acquiring the house property from the annual value of house property as determined in the aforesaid manner.

    Though the provision is very complex to understand, however, in layman terms section 24(b) allows a deduction of interest on home loan (or borrowed capital) from the computed Net Annual Value. In all practical cases, generally, the interest paid on home loan represents the 'Loss from House Property'.

    The following points are noteworthy in the case of interest payable on borrowed capital:

    1. When a person obtains a home loan, he repays the principal as well as pays interest. In normal circumstances, both the principal and interest are paid simultaneously in the form of EMI.

    2. Tax benefit is available under the Income Tax Act both for the principal and interest but under different provisions. While the principal is allowed as deduction u/s 80C, the interest is deductible u/s 24(b).

    3. Deduction u/s 80C is allowed only if the principal amount is paid to the lender during the previous year. In case, the principal amount is unpaid in the year, no deduction u/s 80C  can be claimed. On the contrary, the interest is allowed as a deduction even if the same is not paid during the previous year. In other words, the deduction for interest is allowed on due basis.

    5. Deduction u/s 80C for principal repayment is allowed only if the loan is taken from prescribed institutions like banks, housing finance companies, etc. No such condition is imposed for claiming a deduction for interest u/s 24(b).

    6. However, the deduction for interest amount u/s 24(b) will be allowed only on the basis of certificate issued by the lender certifying the interest amount payable for the acquisition or construction of the house property. This condition is attached for the acquisition or construction of the house property and not in the case interest is payable if the amount is borrowed for repair, renewal or reconstruction of the house property.

    7. Deduction under section 80c is available only for the purchase or construction of a residential house property. Interest is available for repair, renewal or reconstruction also apart from purchase and construction.

    8. Further, deduction for principal repayment of the loan, u/s 80C is available for a residential house only and not for other than a residential house viz. shop, godown, etc. Deduction for interest payable can be claimed for residential as well as commercial complexes, since section 24(b) does not restrict any usage on type of house property.

    9. To claim the deduction for interest payable, it is not necessary to have a home loan. Even if personal loan is used for purchase or construction of the house property then deduction is available provided the lender gives a certificate that the loan is used for the purchase or construction of the house property. In the case of banks, such a certificate is given only for home loans and not for personal or any other type of loans. Hence it is practically not possible to claim a deduction in such cases.

    10. Deduction u/s 80C can be claimed even if the house property is under-construction. However, interest u/s 24(b) cannot be claimed for a house property during the construction period. It is allowed when the possession is taken.

    The legal provisions related to deductions allowed under section 24(a) and (b) from the computation of income from house property are explained hereunder.

    Description
    Nature of Deductions
    Standard Deduction
    [Section 24(a)]
    30% of Net Annual Value of the house property is allowed as deduction if the property is let-out during the previous year. This deduction is not available for a self-occupied house property since, in case of a self-occupied house property, the Net Annual Value is ‘Nil’.
    Interest on Borrowed Capital
    [Section 24(b)]
    At first, deduction is allowed for the entire amount of interest payable on borrowed capital taken for-
    a) acquisition
    b) construction
    c) repair, renewal or reconstruction
    of the house property.
    However, certain limits are prescribed for availing of interest amount as a deduction under various circumstances and conditions for self-occupied house property which are mentioned below in the neat table.

    Deduction for Self-Occupied House Property
    Amount of deduction for interest payable on borrowed capital
    (1) Where the self-occupied house property is acquired or constructed with capital borrowed on or after 01.04.1999
    Aggregate amount of the deduction is limited to Rs. 2,00,000
    (2) Where the acquisition or construction of the self-occupied house property is completed within 5 years from the end of the financial year in which capital is borrowed
    (3) In any other case
    [Cases that do not fall in (1) or (2) above. Thus capital borrowed for Repair or renewal or reconstruction of the house is covered here.]

    Rs. 30,000
    The aggregate amount of deduction under situations (1), (2) and (3) shall not exceed Rs. 2,00,000.

    Read more on the limit of interest deduction of Rs. 30,000

    Deduction for Let-out  House Property
    Amount of deduction for interest payable on borrowed capital
    Any house property which is let-out (either actually let-out or deemed to be let-out)
    Entire amount of interest payable on borrowed capital is allowed as a deduction without any limit.

    The limit of Rs. 2,00,000 - being the aggregate amount of deduction of interest payable - applies only for self-occupied house property or properties and not for let-out house property or properties.

    If a person owns more than one self-occupied house property, then the combined deduction of interest payable shall not exceed Rs. 2,00,000 after taking into account the interest payable for all the self-occupied house properties.

    The Interim Budget 2019 allowed a person to own two house properties as self-occupied house properties. The maximum amount of deduction on account of interest payable is Rs 2 lakh for both the self-occupied house properties. It is a wrong interpretation that the maximum amount of deduction for interest is Rs. 4,00,000 in this case.

    Even though the Interim Budget 2019 has allowed a person to own two house properties as self-occupied house property without any further tax implication, but there is no enhancement in the limit of deduction from Rs. 2 Lakh for interest payable on borrowed capital. Prior to this amendment, a person was allowed only one house property as a self-occupied house property.

    It is already stated that if a person owns more than two self-occupied house properties then such excess house property will be deemed to have been let-out.

    It shall be remembered that the deduction for interest payable on a self-occupied house property and a let-out house property are mutually exclusive. In other words, it means if a person has three house properties, out of which two are self-occupied and one is let-out, then for the two self-occupied house properties, the person can claim a deduction for interest on borrowed capital up to Rs. 2,00,000 and for the let-out house property, he can claim the entire amount of interest payable on borrowed capital as a deduction.

    Any interest paid in excess of Rs. 2,00,000 for self-occupied house property or properties shall be ignored and cannot be claimed in any succeeding assessment years. Such excess interest is lost forever

    Illustration 1: Mr. Rakesh owns three house properties-House 1, House 2 and House 3. House 1 and House 2 are self-occupied whereas House 3 is let-out to a tenant for an annual rent of Rs. 3,00,000. Interest on home loan for the year is Rs. 1,70,000; Rs. 1,10,000 and Rs. 6,25,000 respectively for the three houses. The deduction for the amount of interest on borrowed capital is computed as under-
    Particulars
    House-1
    (Self-Occupied)
    House-2
    (Self-Occupied)
    House-3
    (Let-out)
    Annual Value
    Nil
    Nil
    3,00,000
    Less: Interest u/s 24(b)
    1,70,000
    1,10,000
    6,25,000
    Income (Loss) from House Property
    (-)1,70,000
    (-)1,10,000
    (-)3,25,000
    Maximum amount of loss from House Property allowed
    (-)2,00,000
    (-)3,25,000

    Deduction of interest for under-construction property

    As per the explanation to section 24(b), a deduction for interest cannot be claimed for an under-construction house property during the construction period. 

    However, such a deduction is not lost. The interest paid during the construction period will be accumulated and the deduction will start from the financial year in which possession of the house property is taken by the assessee. 

    However, the entire accumulated interest will not be allowed in one go. The accumulated interest will be allowed in 5 equal installments beginning from the financial year in which the possession is taken. 

    Thus the assessee can claim 20 percent of the interest paid during the construction period as a deduction after getting the possession of the house property. 

    This is applicable only for under-construction house property. Such a situation does not arise if the house property acquired is a complete house property.

    House property is considered as an under-construction if 'completion certificate' is not received from the competent authority in respect of such property.

    Why there is Loss from House Property

    After discussing the legal provisions the observations are discussed under which gives rise to negative income or 'Loss from House Property'.

    The loss from house property arises mainly for a deduction claimed on account of interest payable on borrowed capital for acquiring or construction of the house property.

    In case house property is acquired or constructed on own fund and no borrowed capital is used then the question of payment of interest does not arise and hence there will be no deduction for interest on borrowed capital.

    When a house property is self-occupied, its Gross Annual Value is taken as 'Nil'. If such a house property is acquired or constructed with borrowed capital then claiming a deduction on the interest payable will only result in a loss. This is normally seen in most of the individual's case. This loss is termed as ' Loss from House Property'.

    Similar is the case of a let-out house property. If let-out house property is acquired or constructed with borrowed capital and the interest amount is more than the 'Net Annual Value' of the house-property, then it will result in a loss. When a property is let out, its Gross Annual Value is the rental value (higher of actual rental value or deemed rental value) of the property as stated above.

    Deduction under section 80EEA

    Union Budget 2019 allowed taxpayers to claim an additional deduction u/s 80EEA of the Income Tax Act, 1961 of up to Rs. 1,50,000 for interest paid on loans borrowed up to 31st March 2020 for purchase of an affordable house valued up to Rs. 45 lakh. 

    Therefore, a person purchasing an affordable house will now get an enhanced interest deduction up to Rs. 3.5 lakh comprising deduction u/s 80EEA up to Rs. 1.50 Lakh and existing deduction of Rs 2 Lakh u/s 24.


    Please note that deduction allowed under section 80EEA is covered under chapter VI-A of the Act and hence does not affect the computation of 'Loss from House Property'. This deduction is allowed from Gross Total Income of the assessee. 

    Whether Loss from House Property is Tax neutral

    The computed loss from house property is tax beneficial to an assessee. This is because the loss is allowed to be set-off against any other income of the assessee including salary income. Such a set-off of loss reduces the taxable income of the taxpayer which ultimately reduces the tax liability.

    Let's see how it works.

    Illustration 2: Mr. Rakesh owns a house property which is used by him for his own residence. He has acquired the house with home loan from LIC Housing Finance Company Limited. During FY 2019-20, he will be paying EMI of Rs. 40,524. The Principal component is Rs. 1,45,887 and the interest is Rs. 3,40,401.

    His Income from Salary is Rs. 10,00,000. He has also paid his life insurance premium of Rs. 50,000 and deposit in his PPF account Rs. 60,000 in FY 2019-20. Compute his tax liability for FY 2019-20 (Assessment Year 2020-21).

    Computation of tax liability:

    Particulars
    Amount (in Rs.)
    Income from Salary
    10,00,000
    Income from House Property [See workings below]
    (-)2,00,000
    Gross Total Income
    8,00,000
    Less: Deduction u/s 80C
    (PPF Rs. 60,000 + LIP Rs. 50,000 + Principal Rs. 1,45,887). Maximum amount is limited to Rs. 1,50,000
    1,50,000
    Total Income
    6,50,000
    Tax on Rs. 6,50,000
    42,500
    Health & Education Cess @ 4%
    1,700
    Total Tax Payable
    44,200

    Note: Computation of Income from House Property
    Particulars
    Amount (in Rs.)
    (a) Gross Annual Value
    (in case of self-occupied house property, it is Nil)
    Nil
    (b) Interest paid / payable on home loan 
    (Interest paid / payable is Rs. 3,40,401 but for self-occupied house property, the maximum deduction is allowed at Rs. 2,00,000.)
    (-)2,00,000
    (c) Income (Loss) from House Property
    (-)2,00,000

    Hence we can see that the loss from house property has reduced the total income of Mr. Rakesh by Rs. 2,00,000. This reduction in total income has resulted in reduced tax liability.

    In the case of self-occupied house property, the remaining amount of interest of Rs. 1,40,401  (Rs. 3,40,401 - Rs. 2,00,000) which could not be set-off is lapsed.

    This adjustment of Loss from House Property of Rs. 2,00,000 with salary income is known as 'set-off' of Loss from House Property.

    Similar is the position for let-out house property. However, the set-off rule for let-out house property is different from self-occupied house property.

    Before discussing the set-off of loss from let-out house property, it is pertinent to understand some basic concepts.

    Concept of set-off and carry forward of loss

    While computing the income (or loss) from the house property, the interest amount which is claimed as a deduction is known as 'Deduction' from house property income. The resultant figure (if in negative) is called Income (Loss) from House Property.

    When the resultant loss is adjusted with other income, the process is called 'set-off of losses'. When the reaming loss, which cannot be set-off in the current year, is allowed to set-off in subsequent years,  it is called 'carry forward' of losses.

    In Illustration 2, Rs. 2,00,000 claimed as a deduction in (b) for interest paid on home loan is the 'Deduction' whereas the resultant figure of (-) Rs. 2,00,000 as determined in (c) is the 'Income from House Property'. Since the resultant figure is negative, it becomes 'Loss from House Property'.

    And the adjustment of Loss from House Property of Rs. 2,00,000 with the salary income of Rs. 10,00,000 is known as the 'set-off' of Loss from House Property.

    Now, we will discuss the set-off and carry forward of loss from house property in case the property is let-out.

    The concept of 'carry forward' of loss from house property assumes importance only in the case of let-out house property. This is irrelevant for self-occupied house property.

    Let us understand the concept with an example.

    Illustration 3: Mr. Rakesh owns a house property which he had acquired with a home loan. He has let out the house to a tenant for an annual rent of Rs. 3,00,000. During the FY 2019-20, he has paid Rs. 6,25,000 as interest on the home loan. Compute the income from house property.
    Computation of Income from House Property.

    Particulars
    Amount (in Rs.)
    Gross Annual Value
    3,00,000
    Interest paid on borrowed capital u/s 24(b)
    (In the case of let-out house property, the deduction for entire interest paid is allowed to be claimed)
    (-)6,25,000
    Income (Loss) from House Property
    (-) 3,25,000

    In this case, since the house property is let-out the entire amount of interest paid is allowed as 'Deduction' from computing the income from house property. This is contrary to the rule in case of self-occupied house property where the 'deduction' is limited or restricted to Rs. 2,00,000.

    In this manner, the income or loss from a self-occupied or let-out house property is required to be computed.

    Intra head and Inter head set-off of Loss from House Property

    It must be remembered that there are two concepts of set-off of loss arising from house property - be it a self-occupied house property or a let-out one.

    (1) Intra head set-off: This refers to the adjustment of loss under one head of income with other income chargeable to tax under the same head. In case of income from house property, it refers to the set-off of loss from one house property with another house property.

    Illustration 4: Mr. Rakesh owns three house properties-House 1, House 2 and House 3. House 1 is self-occupied while House 2 and House 3 are let-out.  The annual rent receipt is Rs. 3,00,000 and Rs. 6,00,000 for House 2 and House 3 respectively. House 3 is acquired with own fund. Interest on home loan for the year is Rs. 3,00,000 and Rs. 6,25,000 respectively for House 1 and House 2 respectively.
    Compute the income under the head 'Income from House Property'.

    Computation of Income under the head Income from House Property:

    Particulars
    Amount (in Rs.)
    Amount (in Rs.)
    Amount (in Rs.)
    Amount (in Rs.)
    Houses
    House 1
    (Self-occupied)
    House 2
    (let-out)
    House 3
    (let-out)
    Total
    Gross Annual Value
    Nil
    3,00,000
    6,00,000

    Interest paid on borrowed capital u/s 24(b)
    (-)2,00,000[1]
    (-)6,25,000
    Nil

    Income (Loss) from House Property
    (-) 2,00,000
    (-)3,25,000
    6,00,000
    75,000
    [1] In case of self-occupied house property, maximum amount of deduction u/s 24(b) is limited to Rs. 2,00,000.

    Note: The loss of Rs. 2,00,000 from House 1 and loss of Rs. 3,25,000 from House 2 is set-off with the Income of Rs. 6,00,000 from House 3. Income from all three houses is chargeable to tax under the same head of income namely 'Income from House Property'. Hence, the loss of two houses can be set-off with the income of the third house. This type of set-off of losses is called 'Intra Head' or 'same head' set-off of losses.

    Remember, the income tax Act allows an intra-head set-off of loss in case of loss from house property without any limit. It means no limit will apply for loss in House 2 in case of intra-head set-off. [Section 70(1)]  

    Illustration 5: Continuing with Illustration 4, the additional data of Mr. Rakesh are: Income from Salary Rs. 10,00,000. Payment for life insurance premium Rs. 50,000 and deposit in PPF account Rs. 1,20,000 in FY 2019-20. 
    Compute his Total Income for FY 2019-20 (Assessment Year 2020-21).

    Computation of Total Income:

    Particulars
    Amount (in Rs.)
    Income from Salary
    10,00,000
    Income from House Property
    75,000
    Gross Total Income
    10,75,000
    Less: Deduction u/s 80C
    1,50,000
    Total Income
    9,25,000

    Note: Only the net income chargeable under the head 'Income from house property' will come in the final computation of total income.

    (2) Inter head set-off: This refers to the adjustment of loss under one head of income with income chargeable to tax under other head(s) of income. In case of income from house property, it refers to the set-off of loss from one house property with other head of income say, salary.

    This is the place where Budget 2017 has complicated the matter. It must be remembered that prior to AY 2018-19, the entire amount of loss from house property was allowed to be set-off with other head of income.

    In the case of self-occupied house property, the maximum amount of loss can be Rs. 2,00,000 because of restriction imposed by section 24(b) on claim of 'deduction' for interest payment. The 2017 amendment did not affect this position as the position remained unaltered even after the amendment.

    On the contrary, there is no such restriction on the claim of deduction for interest payment in the case of let-out house property is imposed under section 24(b). Hence, the entire amount of payment of interest in full is allowed as a deduction and the resultant loss, if any, may come to more than Rs. 2,00,000. This is the place where the 2017 amendment has impacted harshly. 

    As per the amendment by Budget 2017 and from AY 2018-19, where the net result of the computation under the head "Income from house property" is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds Rs. 2 Lakh, against income under the other head. [Section 71(3A)]

    In other words, the amendment has restricted the inter-head set-off of loss under the head 'Income from house property' to a maximum amount of Rs. 2,00,000.

    There is a misconception among many taxpayers that the amendment was made in the 'deduction' amount i.e., the claim for payment of interest amount cannot exceed Rs 2 Lakh even in the case of let-out house property. This is wrong. the amendment did not limit the claim of interest amount but restricted the inter-head set-off of the loss amount in section 71(3A). The amendment was not carried on in section 24(b).

    What will happen if the amount of loss under the head of income 'Income from house property' is more than the income other head of income or the loss is more than Rs. 2 Lakh?

    Carry forward and set-off of loss from house property

    Any amount of loss under the head 'Income from House Property' cannot be set-off in a previous year in full then such amount of loss which cannot be set-off can be carried forward for next 8 assessment years to be set-off only with the income chargeable under the head 'Income from House Property'. [Section 71B]

    Thus in future years, only intra-head (same head) set-off is allowed. Inter-head (Other head) set-off is not allowed in subsequent years.

    Summary of the provisions related to set-off and carry forward and set-off of loss from house property

    1. Loss from house property should be first set off from the same head of income. 

    2. If the loss from a house property could not be set off with the income of any other property chargeable under the head Income from House Property either in full or in part, then it is eligible to set-off with other head of income.

    3. If the loss from a house property could not be set off with any other head of income either in full or in part, then the unabsorbed loss is eligible to be carried forward for the next 8 assessment years.

    4. In subsequent years, the loss brought forward from earlier years can be set-off only with the income chargeable under the head income from house property.

    5. Due to the amendment by Budget 2017 in section 71(3A) it may so happen that in some cases even after a period 8 years the entire loss from house property cannot be set-off due to insufficiency of income. After 8 years, the unabsorbed loss from house property will lapse.

    Let us understand the same with the help of an illustration.

    Illustration 6: Mr. Ramesh owns a house property which is let out for annual rent of Rs. 12,00,000. The interest paid on the home loan is Rs. 18,00,000 during FY 2019-20. His salary income for the year is Rs. 52,00,000.
    Compute the total income for FY 2019-20, 2020-21 and 2021-22 assuming the same amount of interest payment, rental income and salary income for the next two years. His annual interest income from bank fixed deposits is Rs. 50,000.

    Computation of Total Income

    Particulars
    FY 2019-20
    (AY 2020-21)
    (in Rs.)
    FY 2020-21
    (AY 2021-22)
    (in Rs.)
    FY 2021-22
    (AY 2022-23)
    (in Rs.)
    Income from Salary
    52,00,000
    52,00,000
    52,00,000
    Income from Other Sources
    50,000
    50,000
    50,000
    Gross Total Income
    52,50,000
    52,50,000
    52,50,000
    Set-off of Loss from House Property
    (-)2,00,000
    (-)2,00,000
    (-)2,00,000
    Total Income
    50,50,000
    50,50,000
    50,50,000

    Computation of Income from House Property

    Particulars
    FY 2019-20
    (AY 2020-21)
    (in Rs.)
    FY 2020-21
    (AY 2021-22)
    (in Rs.)
    FY 2021-22
    (AY 2022-23)
    (in Rs.)
    Gross Annual Value
    12,00,000
    12,00,000
    12,00,000
    Interest paid on borrowed capital u/s 24(b)
    (-)18,00,000
    (-)18,00,000
    (-)18,00,000
    Income (Loss) from House Property
    (-)6,00,000
    (-)6,00,000
    (-)6,00,000
    Add: Loss brought forward from previous year
    Nil
    (-)4,00,000
    (-)8,00,000
    Total available Loss from House Property for the year
    (-)6,00,000
    (-)10,00,000
    (-)14,00,000
    Set-off allowed in FY
    [Sec 71)3A)]
    2,00,000
    2,00,000
    2,00,000
    Unabsorbed Loss carried forward to next year
    (-)4,00,000
    (-)8,00,000
    (-)12,00,000

    Filing of return for 'carry forward and set-off' of unabsorbed Loss from House Property

    As stated above, the unabsorbed Loss from House Property is allowed to be carried forward for set-off in the subsequent 8 years. To enjoy this benefit, one needs to file a return of income.

    Now a question arises in the minds of many people whether the timely filing of income tax return is mandatory to carry forward the 'Loss from House Property'. In other words, whether 'Loss from House Property' is allowed to be carried forward if a Belated return of income is filed.

    As per section 139(1), a person is required to file a return of income within the prescribed due date. If a person cannot file a timely return of income, then he can file the return of income at any time after the due date, known as Belated Return, but before the end of the relevant assessment year.

    Section 139(4) contains the provisions related to the filing of a belated return of income. 

    Section 80 provides a return of loss must be filed under section 139(3). Section 139(3) provides that if a person has sustained any loss in a previous year and wishes to carry forward the loss then he shall mandatorily file a return of income within the prescribed due date u/s 139(1). In other words, the non-filing of a return of loss disentitles the assesses from carrying forward the loss sustained by him.

    However, there is an exception to the loss suffered under the head 'Income from House Property'. Loss from House Property is carried forward under section 71B of the Act and section 80, as well as section 139(3), only talks about certain sections except for section 71B.

    Hence, in order to carry forward the unabsorbed loss from house property, it is not mandatory to file a return of income in due time. In other words, the benefit of 'carry forward and set-off' of the loss from the house property will be allowed even if the return is filed belatedly. However, filing of return is mandatory to claim the benefit of 'carry forward and set-off' of loss from house property, whether it is a timely filed return or a belated return.

    For example, the due date to file a return of income for an Individual for the AY 2020-21 is July 31, 2020 (unless extended). In case an Individual sustains losses under the head Income from House Property and wishes to carry forward the same then he must file a return of income for the AY 2020-21 by March 31, 2021.

    Conclusion

    The rules related to set-off and carry forward of loss from house property are not yet complex but rather not too simple to understand. 

    By limiting the set-off of the loss amount has caused pain to many investors who invested in real estate. In many cases, it may so happen that even after the 8 years allowed for set-off of loss from house property, there may remain unabsorbed loss which will lapse and the taxpayer cannot enjoy any tax benefit thereon. 

    The worst part was that the provision has a retrospective effect. In other words, the restriction is applicable to an already acquired house property rather than acquired on or after a particular date. A person who bought the house property on loan with a proper tax planning of unrestricted set-off of loss amount may find himself in flux after the amendment.

    On the other hand, the restriction has also increased the tax liability of a taxpayer.

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