Sec 22 of Income Tax Act 1961 defines house property income as, any rental income earned by a person from letting out a house property. There may be situations in which earning would be less compare to the expenses for the house, that case is of loss from house property. In this article, I have explained its treatment and computation.
This house property includes of any building or land appurtenant thereto.
When rental income is taxable under House Property?
Rental income always chargeable to tax under the head Income from House Property only if the following conditions are satisfied.
- That the property belongs to the person
- And that the property is not used by the person for the purpose of business and profession whose income is chargeable to tax under the head Income from Business and Profession.
For example, Mr A has a house property, in which there are 10 rooms. Rent from each room is Rs. 3000. So the total rent of Rs. 30,000 is taxable under the head income from house property.
Second Example, Mr B is in business of sale/purchase of property, he owns some 5 flats as stock, from which rent of 80,000 is derived till the time they are sold. Since the flats are used for business purpose, any rental income would be taxed under the head income from Business and Profession.
What is loss from House Property?
The property can be of two types as mentioned below: –
Self-occupied property
These properties are used by the owner for self-use, no rental income from such property is earned. Since there is no income, any expense would lead to loss from House property. Such expense could be interest on borrowed capital.
Let out property
These properties are given for let out to other person on rent. If rent received is less than the expenses for property, then there would be loss from house property. Such expense could be the interest on borrowed capital for purchase or construction of house.
How loss from house property arises?
A loss arises when income is less than expense. Here income is rental income.
Expenses allowed are mentioned below:
As per the Income Tax Act 1961 interest on money borrowed for the purpose of construction, reconstruction and repairs of the said house property is allowed as expense/deduction U/S 24(b).
A maximum of 2 Lakhs of interest portion is allowed as expense/deduction U/S 24(b) in case of self-occupied house property.
However, there is no limit to this deduction in case of rented property.
Earlier only one house property was allowed to be treated as self-occupied and others were treated as let out or deemed occupied as the case may be.
But with effect from 2019(interim budget) Two house properties can be treated as self-occupied by the assessee.
However, the maximum amount of deduction in case of self-occupied house property remains the same i.e. 2 lakhs.
The ₹30,000 deduction applies in the following cases:
- Loan for Purchase/Construction NOT Completed in 5 Years
- If the loan is taken for purchase or construction of a house, but the construction is not completed within 5 years from the end of the financial year in which the loan was taken, then the interest deduction is limited to ₹30,000 instead of ₹2,00,000.
- Loan Taken for Repairs, Renewal, or Reconstruction
- If the loan is taken only for repairs, renewal, or reconstruction of a house (not for purchase or new construction), then the maximum deduction allowed is ₹30,000, even if the house is self-occupied.
Example:
- If you took a loan in April 2020 for house construction, and the construction was not completed by March 2025, then instead of ₹2 lakh, you can only claim ₹30,000 as an interest deduction.
The deduction on interest paid for a home loan under Section 24(b) depends on the nature of the property and the loan conditions. Here’s the breakdown:
| Scenario | Maximum Deduction |
| If the house is self-occupied and the loan is taken for purchase/construction (completed within 5 years) | ₹2,00,000 |
| If the house is self-occupied and the construction is NOT completed within 5 years from the end of the financial year in which the loan was taken | ₹30,000 |
| If the house is let out (rented property) | No upper limit (entire interest is deductible) but loss from house property is capped at ₹2 lakh for set-off against other income |
(NOTE: Deduction of interest U/S 24(b) in case of self-occupied house property and let out property are separate.
Assesses can claim deduction of interest for self-occupied property and let out property separately. You can say that they are mutually exclusive)
Illustration: There are three properties, two are self-occupied and third is let out. From let out property rental income is 4.30 Lac.
| Particulars
|
HP 1
Self-occupied |
HP 2
Self-occupied |
HP3
Let out |
| GAV | NA
|
NA | 4,30,000
|
| Deductions U/S 24(@)
Municipal Taxes |
NA | NA | 23,000 |
| – | – | 4,07,000 | |
| Less-Standard Deduction@30% | NA | NA | 1,22,100 |
| NAV | NIL | NIL | 2,84,900
|
| Deductions U/S 24(b)
Interest on Borrowed Capital |
1,50,000 | 90,000 | 6,50,000 |
| Loss from House Property | (1,50,000) | (90,000) | 3,65,100
|
| Maximum amount that can be claimed as deduction | 2,00,000
|
3,65,100 | |
In the above example we can see that the loss from self-occupied and let out property are calculated on individual basis.
How the loss of house property can be adjusted?
House Property Loss can be adjusted against Income from House Property and also against Income from Other heads of Income i.e. Both Intra head and inter head adjustment of loss is possible.
While computing loss from house property it has to be kept in mind that before making inter head adjustment, loss has to be first adjusted against income from house property if any.
Prior to 2024 Finance Budget and AY2025-2026 the entire loss from house property was allowed to be adjusted against the income from Other heads.
However, after 2017 budget and AY 2018-2019 a limit has been introduced to this. Maximum of 2 Lacs can be adjusted against the other heads of income i.e. inter head adjustment of house property loss.
Example
Mr. X has 2 houses. Income from house property A is Rs. 1,40,000 and from property B there is a loss of Rs, 4,80,000. Mr. X has also income from salary of Rs. 6,00,000.
First, the loss of Rs. 4,80,000 will first to be set off from income from property A i.e. Rs. 1,40,000. Second, the remaining loss of Rs. 3,40,000 will be allowed to be set off under the salary to the extent of Rs. 2,00,000. Then, the balance loss of Rs. 1,40,000 shall be carried forward to next year. The next year the loss of Rs, 1,40,000 shall be adjusted under the head of house property only.
Can the loss from house property be carried forward?
Loss from House Property if not adjusted in the relevant year then the unadjusted loss can be carried forward for next 8 years.
However, a return is required to be filed to claim the loss.
Whether loss of house property is carried forward, if there is belated return?
As per Income Tax Act, to claim carried forward loss of any head of income, one has to file the return within the time so prescribed U/S 139(1).
However, for house property loss can be carried forward even if the return is not filed within the prescribed time limit U/S 139(1).
How the carried forward loss from house property is to be adjusted?
- If the loss of house property is not set off of the income of the same year than it will be carried forward in the next year.
- In the next year, loss will be adjusted only from the income of the house property.
- Income from others heads cannot be used for adjust the loss of house property.
- If there is any balance of loss which could not be adjusted then balance can be carried forward for next year upto remaining 7years.
In the Union Budget 2025, significant amendments were introduced concerning the taxation of house properties, aiming to simplify tax compliance for homeowners:
- Tax Treatment of Self-Occupied Properties: Previously, if a taxpayer owned more than one self-occupied property, only one could be treated as self-occupied with a “Nil Annual Value,” while the second property was deemed to be let out, requiring the declaration of notional rent for taxation. Effective from April 1, 2025, taxpayers can now claim “Nil Annual Value” for up to two self-occupied properties without any conditions. This means no deemed rental income will be charged on the second self-occupied house, simplifying tax compliance for homeowners.
- Elimination of Proof Requirements: The amendment removes the necessity for taxpayers to demonstrate reasons such as employment relocation to claim a property as self-occupied. This change reduces compliance burdens, allowing homeowners to claim the benefit for two properties without providing specific justifications.
These amendments are designed to provide relief to homeowners, encourage property ownership, and simplify the tax filing process. By allowing two properties to be treated as self-occupied without additional conditions, the government aims to reduce the tax burden on individuals owning multiple residences.