House property losses: how they are set off and carried forward (as set, 1961 Act, AY 2019-20)

How a loss arises under this head

A loss under the head Income from house property usually comes from interest on borrowed capital (section 24(b)): for a self-occupied house the annual value is nil (section 23(2)), so the interest, up to its limit of ₹30,000 or ₹2,00,000, is a loss; for a let-out house the interest has no limit and can exceed the net annual value less 30%. The ₹2,00,000 limit applies only where the house is acquired or constructed with capital borrowed on or after 1 April 1999, the purchase or building is finished within five years from the end of the financial year of the borrowing (second proviso to section 24(b)), and the lender's certificate of the interest payable is furnished (third proviso); otherwise the limit is ₹30,000.

Set off in the same year

1. Within the head: the loss from one house is first set off against income from another house of the assessee (section 70(1)).
2. Against other heads: a loss left under the head may be set off against income under any other head in the same assessment year, including capital gains (section 71(1) and (2)).
3. Limit of ₹2,00,000: from assessment year 2018-19 the loss from house property set off against other heads in a year cannot exceed ₹2,00,000 (section 71(3A), inserted with effect from 1 April 2018, so it governs 2019-20). Any excess is carried forward.

Carry forward

• A house property loss that cannot be set off in the year, or the part above ₹2,00,000, is carried forward to the following assessment years (section 71B).
• In a later year it can be set off only against income from house property, not against any other head.
• It may be carried forward for up to eight assessment years after the year in which it was first computed.

Return of loss

The bar on carrying forward a loss not determined on a return filed within time (section 80, with section 139(3)) names the business, speculation, specified business and capital losses and the loss from owning race horses (sections 72(1), 73(2), 73A(2), 74(1) and (3) and 74A(3)), but not section 71B. So a house property loss can be carried forward even if the return is filed after the due date.

Example (our own figures)

For assessment year 2019-20 Ms. Divya has salary of ₹9,00,000 and a loss of ₹3,20,000 from a let-out flat bought with a loan. ₹2,00,000 of the loss is set off against her salary, which falls to ₹7,00,000; the other ₹1,20,000 is carried forward. In assessment year 2020-21, when her flat yields income from house property of ₹80,000, ₹80,000 of the carried-forward loss is set off, and ₹40,000 goes on to 2021-22.