If you have an ongoing home loan and are looking to reduce your net tax outgo, it is advisable to claim a loss from house property. By doing so, you can offset this loss against your other incomes, potentially lowering your overall taxable income and reducing your total tax burden. It is important to meet specific conditions if you wish to carry forward or offset your house property’s loss against other incomes. Keep reading to learn more about these conditions.
When can you set-off house property loss with other incomes to reduce your taxable income?
There is no limit for set-off for house property loss with incomes that you get from other house property, however there is a limit of Rs 2 lakh when you set-off house property loss with other incomes (different heads of income). Moreover, if the house property loss exceeds Rs 2 lakh in a year then the excess loss can be carried forward for 8 years if you chose to file your income tax return (ITR) under the old tax regime. However, under the new tax regime (section 115 BAC), you cannot set off self-occupied house property loss against any other income or carry forward any losses.”As per section 115 BAC, set-off of current year house property loss shall not be available against any other head of income under the new tax regime. Also, any remaining loss under this head cannot be carried forward. Also, it may be noted that in respect of self-occupied property, deduction of interest paid against home loan is not permissible,” said the Income Tax Department.
Under the new tax regime, individuals can still claim a deduction on home loan interest payments for let-out properties.Experts explains that while taxpayers choosing the new tax regime cannot offset or carry forward losses from self-occupied properties, there are no such restrictions for let-out properties. “Taxpayers should be able to set-off carried forward house property losses if they pertain to let-out properties, even under the new-regime,” says Expert
Example 1: “Mr. A has incurred a home loan interest expense of Rs 2 lakh on a self-occupied house property. He has also incurred a home loan interest expense of Rs 5 lakh on a let-out house property (rented out), from which taxable rent (after other permissible deductions) is Rs 8 lakh per annum.
Under the old tax regime, Mr. A would have paid tax only on net-rental income of Rs 1 lakh i.e. against total income of Rs 8 lakh from house properties, total deductions for interest would have been entire Rs 7 lakh paid — Rs 2 lakh (self-occupied) + Rs 5 lakh (let-out).
In the new tax regime, the interest of Rs 2 lakh (self-occupied) will be ignored, irrespective of the amount of taxable rent from let-out properties.
Mr. A will continue to claim deduction of Rs 5 lakh on let-out house property and pay tax on balance rent of Rs 3 lakh (Rs 8 lakh less Rs 5 lakh). If the taxable rent from let-out property was say Rs 3 lakh, then Mr. A would claim interest deduction of only Rs 3 lakh and the balance interest expense on let-out house property of Rs 2 lakh (Rs 5 lakh less Rs 3 lakh) would lapse and not be allowed to be carried forward.”
Experts, says that if you have any carried forward losses related to a self-occupied house property, you will lose them all if you choose the new tax regime. Therefore, they suggests calculating the tax amount under both regimes before making a decision.
He explains: “If a taxpayer has transitioned from the old regime to the new regime and has brought forward losses under the head ‘Income from House Property’ from the old regime, the eligibility of setoff will be determined on the basis of the nature of the loss:
- He will not be eligible to claim the said losses, if the said losses pertain to home loan interest paid on a self-occupied property. These losses stand lapsed immediately and no deduction will be allowed, nor can they be carried forward.
- He can set off the brought forward losses of past years if the losses pertain to interest which was paid on a rented property. However, the brought forward losses can be set off against income from house property only and not with any other head. Any loss remaining the set off would however lapse and no such loss will be carried forward.”
“The home loan interest deduction that was previously allowed under the old regime for let-out properties (which could create a loss if the interest exceeded the rental income) is not permitted in the new tax regime. Additionally, any house property loss carried forward from previous years (under the old regime) cannot be carried forward or set off in future years if the taxpayer opts for the new regime,” says Expert
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