Loss from House Property – Treatment under Income Tax Law

The house property can either be self occupied or rented.  Any house property of the assessee which is given on rent to a tenant even for a few months is to be considered as a let out house property and income tax from house property is calculated accordingly.

Any income arising from house property in the form of a rental income is referred to as the “Income from House Property”.

Even if the house property is not let out but is used for self occupation, still in such case, the rental income (Referred to as Annual Value) is treated as Nil and the interest paid towards such self occupied House Property is eligible for adjustment.

Mode of Computing “Income from House Property”:

The Computation under this head of income i.e., “income from House Property” can be done in the simple way by following just following 3 simple steps:

1. Step 1: Calculate the Annual Rental Amount received

2. Step 2: Deduct Municipal Taxes paid during the year to arrive at Net Annual Value (NAV)

3. Step 3: From NAV, one can reduce the following two items:

   a) Adhoc 30% of Net Annual Value towards Repairs & Maintenance and

   b) interest paid on housing loan or other borrowed capital,

   Above 3 sequential steps will result in the “Income from House Property”. .

It may happen that the above figures would result in a negative figure. In such a scenario, a taxpayer is eligible to adjust the loss against Income under other heads of Income.

However, there are few important rules which one need to understand for set off of loss House Property loss as under:

Sett off of House Property Loss

The Loss from House Property is allowed to be set-off against any other head of income i.e., Income from Salary, Income from Profits and Gains from Business and Profession, Income from Capital Gains and Income from Other Source during the same year.

However, there is a rider. The maximum limit set for inter- head set off is ₹ 2,00,000 /-for each assessment year. The balance unabsorbed loss (i.e., amount over and above Rs. 2 Lakh) would be allowed to be carried forward for set off in the subsequent assessment years and can be set-off accordingly.

The net income of the taxpayers after adjusting the loss under the head “Income from House Property” will be subject to tax as per the normal applicable slab rates.

Carry-forward of Loss under the head “Income from House Property”

Loss which cannot be set-off in the current year is allowed to be carried forward for a maximum 8 assessment years.

Such Loss which is carried forward is thereafter allowed to be set- off only under the same head, i.e., “Income from House Property”. It may be noted that such carry forward Loss has to be reflected in the income tax return of the taxpayers.

However, the point to be noted is that the taxpayer cannot keep carrying forward the loss from House Property for 8 assessment years as per his own wish or choice. Taxpayers would be required to adjust the loss in the immediately successive year failing which the taxpayers may not be allowed to carry forward the loss and it will be considered as nil.