Income Tax 2025

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Carry forward and set off of loss from house property. ​

110 (1) ​

The unabsorbed loss from house property for any tax year shall be carried forward to the subsequent tax year, and shall be set off only against income from house property, if any, computed for such subsequent tax year, and so on.

110(2) ​

The unabsorbed loss from house property referred to in sub-section (1) shall be carried forward to the following tax year, not being more than eight tax years immediately succeeding the tax year in which such loss was first computed.

110(3) ​

In this section, “unabsorbed loss from house property” means, loss computed under the head “Income from house property” for the tax year, which has not been, or is not wholly, set off against income from any other head, under section 107, for the said tax year

Explanation

Section Summary: ​

This section deals with the carry forward and set-off of losses from house property. It outlines how taxpayers can carry forward unabsorbed losses (losses that couldn’t be fully set off in the current year) from house property to future years and use them to offset income from house property in those years. The section also specifies the time limit for carrying forward such losses.

Key Changes: ​

  1. Carry Forward Limit: The new law allows unabsorbed losses from house property to be carried forward for up to eight tax years immediately following the year in which the loss was first computed. This is a change from the previous law, which allowed carry forward indefinitely but restricted set-off to only income from house property.
  2. Set-Off Restriction: The loss can only be set off against income from house property in subsequent years, not against income from other heads (e.g., salary, business income, etc.).

Practical Implications: ​

  1. For Taxpayers with Rental Losses: If you incur a loss from house property (e.g., due to high interest on home loans or low rental income), you can carry forward the loss for up to eight years and use it to reduce taxable income from house property in those years.
  2. For Property Investors: This provision is particularly relevant for individuals with multiple properties or those who have taken home loans, as it allows them to manage their tax liability over time.
  3. Time-Bound Utilization: Taxpayers must ensure they utilize the carried-forward losses within the eight-year window, as losses will lapse after this period.

Critical Concepts: ​

  1. Unabsorbed Loss from House Property: This refers to the loss computed under the head "Income from house property" that couldn’t be fully set off against other income in the same year. For example, if your house property loss is ₹1 lakh and you have no other income from house property to set it off against, the entire ₹1 lakh becomes an unabsorbed loss.
  2. Set-Off Against House Property Income Only: Unlike other types of losses (e.g., business losses), house property losses can only be set off against income from house property in future years, not against income from other heads like salary or capital gains.

Compliance Steps: ​

  1. Calculate Loss Accurately: Ensure that the loss from house property is computed correctly, considering deductions like interest on home loans and standard deductions.
  2. File Returns on Time: To carry forward the loss, you must file your income tax return (ITR) within the due date. Late filing may result in the loss being disallowed for carry forward.
  3. Maintain Records: Keep detailed records of the loss and its carry forward, including the year it was incurred and the years it was utilized.
  4. Monitor the Eight-Year Limit: Track the eight-year window to ensure the loss is utilized before it lapses.

Examples: ​

  1. Scenario 1: In FY 2023-24, Mr. A incurs a loss of ₹2 lakh from house property due to high home loan interest. He has no other income from house property in that year. He carries forward the ₹2 lakh loss to FY 2024-25. In FY 2024-25, he earns ₹3 lakh from house property. He can set off the ₹2 lakh loss against this income, reducing his taxable income from house property to ₹1 lakh.

  2. Scenario 2: Ms. B incurs a loss of ₹1.5 lakh in FY 2023-24. She carries it forward but does not earn any income from house property in the next eight years. The loss lapses after FY 2031-32 and cannot be used thereafter.

This section provides a structured way to manage losses from house property, ensuring taxpayers can optimize their tax liability over time while adhering to the eight-year limit.