How to Set Off Loss from House Property Against Other Income
- Rashmita Choudhary
- 4 days ago
- 11 min read
Loss from house property is a common scenario for taxpayers with home loans or multiple properties, especially when the interest payable exceeds rental income. The Income Tax Act, 1961 allows taxpayers to set off such losses against other heads of income, reducing the overall tax burden. However, the extent of this adjustment depends on the tax regime chosen and the nature of the income involved. With updates in the Income Tax Bill 2025, the rules for set-off and carry-forward have become more structured, ensuring consistency and clarity for Assessment Year 2025–26.
Table of Contents
Understanding Set-Off of House Property Loss
Loss from house property occurs when the total expenses, such as interest on a home loan and municipal taxes, exceed the income earned from the property. This is common among homeowners who pay significant loan interest, especially for self-occupied or rented properties. Under the Income Tax Act, such a loss is categorized under “Income from House Property.” The law allows this loss to be adjusted—or “set off”—against other heads of income, reducing the taxpayer’s overall tax liability. The idea behind this rule is to give relief to individuals who invest in housing and promote home ownership while ensuring proper income reporting.
How to Set Off House Property Loss Against Other Income
Set-off refers to the adjustment of losses from one source of income against gains from another. Under Section 71 of the Income Tax Act, a taxpayer can adjust house property loss against other income heads like salary, business, or other sources, up to a limit of ₹2 lakh per financial year. For instance, if the total interest on a home loan amounts to ₹4 lakh, and the property generates ₹1 lakh in rent, the net loss is ₹3 lakh. Out of this, ₹2 lakh can be adjusted against salary or business income, while the remaining ₹1 lakh must be carried forward to subsequent years. This helps in reducing taxable income, offering immediate relief to taxpayers under the old tax regime.
Section 71 of the Income Tax Act Explained
Section 71 governs the inter-head adjustment of losses under the Indian tax system. It states that a loss from one head of income (like “Income from House Property”) can be set off against income from other heads such as “Salaries,” “Business or Profession,” or “Other Sources.” However, the law restricts this benefit to a maximum of ₹2 lakh per financial year for house property losses. The section ensures that while taxpayers get relief for genuine losses, the scope of set-off remains balanced to prevent excessive deductions that could distort total income reporting. Any unabsorbed loss beyond the limit must be carried forward for eight assessment years and adjusted only against future house property income.
Example: Set-Off Calculation for AY 2025–26
Consider an individual with a salary income of ₹10 lakh and interest of ₹4.5 lakh on a home loan for a self-occupied property. Since there is no rental income, the entire interest amount becomes a loss under “Income from House Property.” As per Section 71, only ₹2 lakh of this loss can be adjusted against salary income, reducing taxable income to ₹8 lakh for AY 2025–26. The remaining ₹2.5 lakh loss is carried forward for future years. In those years, it can only be set off against income from house property. This rule ensures a fair balance between tax relief and fiscal discipline, while still rewarding genuine property investments.
How Carry Forward of House Property Loss Works
If the total loss exceeds the ₹2 lakh annual limit, the unadjusted amount is carried forward to future years. Such losses can be carried forward for up to eight assessment years, but only to be adjusted against house property income in those years. For example, if a taxpayer carries forward ₹2.5 lakh of house property loss from FY 2024–25, and earns ₹3 lakh from house rent in FY 2025–26, the carried-forward loss can be fully utilized, reducing the taxable house property income to ₹50,000. It’s important to file the income tax return within the due date to claim the carry-forward benefit. Late filing may disqualify this right under Section 80 of the Income Tax Act.
How House Property Loss Works in the Old Tax Regime
Under the old tax regime, taxpayers can claim interest deduction on home loans and adjust up to ₹2 lakh of loss from house property against other income heads. This provision provides substantial relief to salaried and self-employed individuals who pay high EMIs on housing loans. The old regime also allows standard deductions and exemptions such as 30% of net annual value and municipal tax payments, further enhancing the benefit. Therefore, taxpayers with home loans generally find the old regime more beneficial if they have significant interest deductions and plan to maximize the ₹2 lakh set-off limit.
Is Set-Off of House Property Loss Allowed in the New Tax Regime?
Under the new tax regime introduced under Section 115BAC, the benefit of inter-head set-off of house property loss is not available. While the loss can still be reported and carried forward, it cannot be used to offset salary, business, or other income in the same year. Instead, the loss can only be adjusted against future house property income within the next eight assessment years. This simplifies computation but removes a significant tax-saving opportunity. Taxpayers opting for the new regime must therefore evaluate whether the reduced tax rates compensate for the loss of such deductions.
Difference Between Old and New Tax Regime Rules
Particulars | Old Tax Regime | New Tax Regime |
Inter-head Set-Off Allowed | Yes, up to ₹2 lakh | No |
Carry Forward of Loss | Up to 8 years | Up to 8 years |
Applicable Section | Section 71 | Section 115BAC |
Deduction for Home Loan Interest | Allowed up to ₹2 lakh | Not allowed |
Best Suited For | Taxpayers with high deductions | Taxpayers preferring lower rates and simplicity |
The old regime remains more favorable for those with housing loans, while the new regime is suitable for individuals with minimal deductions.
Adjusting Loss from Multiple Properties
When a taxpayer owns more than one property, the loss from one property can be offset against income from another during the same year. This inter-property adjustment is allowed before applying the ₹2 lakh cap for inter-head set-off. For instance, if one property earns ₹2 lakh in rent but another incurs a loss of ₹3 lakh due to loan interest, the combined loss is ₹1 lakh, which can be adjusted against other income. However, if the overall loss exceeds ₹2 lakh, the excess must be carried forward as per the prescribed rules. Proper documentation for both properties is essential for claiming these adjustments during filing.
Compliance Rules and Reporting in ITR
House property losses must be accurately reported under the “Income from House Property” schedule in the ITR form. Taxpayers must mention details like property type (self-occupied or let-out), annual rent, municipal taxes, and interest on borrowed capital. Supporting documents such as the loan interest certificate and property details should be kept ready for verification. If claiming carry-forward benefits, ensure timely filing within the due date under Section 139(1). Any delay can lead to disallowance of the carry-forward benefit. TaxBuddy provides automated ITR filing tools that pre-fill house property details and compute accurate set-off amounts as per the applicable tax regime.
Latest Updates from Budget 2025 and Notifications
Budget 2025 confirmed the continuation of the ₹2 lakh cap for inter-head set-off of house property loss under the old regime. The Central Board of Direct Taxes (CBDT) also clarified the procedure for declaring losses and carrying them forward through improved e-filing utilities. Additionally, the new Income Tax Bill 2025 aligns the treatment of self-occupied and let-out properties, ensuring transparent computation of losses after standard deductions and municipal taxes. The government’s focus remains on simplifying reporting, reducing disputes, and promoting compliance through automation in income tax systems.
Using TaxBuddy for Simplified Tax Filing
Filing tax returns involving house property loss can be complex, especially when balancing set-off and carry-forward limits across regimes. TaxBuddy simplifies this with its AI-driven tools that automatically identify eligible losses, calculate the correct set-off under Section 71, and ensure error-free reporting in the ITR form. The platform also provides expert assistance for reviewing documents, avoiding mismatches, and planning future deductions. This makes it easier for both salaried and self-employed individuals to comply with tax laws without confusion or calculation errors.
Conclusion
Understanding how to set off loss from house property against other income helps taxpayers optimize deductions and plan better for future years. With the right approach, even a loss can translate into valuable tax savings under the old regime. It is advisable to evaluate both tax regimes annually to determine which provides better overall benefits. For anyone looking for assistance in tax filing, it is highly recommended to download TaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
Q1. Does TaxBuddy offer both self-filing and expert-assisted plans for ITR filing, or only expert-assisted options? TaxBuddy provides flexibility for all types of taxpayers through both self-filing and expert-assisted plans. The self-filing option is designed for individuals who are comfortable handling their own tax filings but still want AI-powered assistance for accuracy. TaxBuddy’s platform auto-fills details like Form 16, TDS, and income sources to minimize manual errors. On the other hand, the expert-assisted plan connects users with experienced tax professionals who review the documents, apply the correct deductions, and file the return on behalf of the taxpayer. This ensures compliance with the latest tax regulations and gives peace of mind for complex income structures involving business, capital gains, or property losses.
Q2. Which is the best site to file ITR? The official Income Tax Department portal is the statutory platform for filing returns, but many taxpayers prefer platforms like TaxBuddy due to their smoother experience, faster processing, and personalized guidance. TaxBuddy’s system uses AI validation to identify missing information, mismatches in TDS, and incorrect deductions before submission. It also provides a clear summary of your tax position—making it ideal for both salaried individuals and self-employed professionals. The combination of automated checks and expert review makes it one of the most trusted platforms in India for accurate and efficient ITR filing.
Q3. Where to file an income tax return? Taxpayers can file their income tax return through the government’s e-filing portal (www.incometax.gov.in) or via authorized third-party platforms such as TaxBuddy. While the government portal requires manual input and understanding of multiple forms, TaxBuddy simplifies the process by auto-filling data from uploaded documents like Form 16, AIS, and bank statements. Its guided interface and built-in error detection system make it a convenient and secure alternative, especially for users who want to avoid mistakes and ensure on-time filing with proper documentation.
Q4. Can house property loss be set off against salary income? Yes, house property loss can be set off against salary income, but only up to a maximum limit of ₹2 lakh per financial year under Section 71 of the Income Tax Act. This rule applies only under the old tax regime. For example, if a taxpayer has a salary of ₹10 lakh and a house property loss of ₹3 lakh, they can adjust ₹2 lakh against salary income and carry forward the remaining ₹1 lakh. This provision helps reduce taxable income, especially for homeowners paying interest on housing loans. However, this benefit is not available under the new tax regime.
Q5. What if house property loss exceeds ₹2 lakh? When the loss from house property exceeds ₹2 lakh in a financial year, only ₹2 lakh can be adjusted against other income heads in that year, while the remaining balance is carried forward for up to eight subsequent assessment years. These carried-forward losses can only be adjusted against future house property income and not against salary or business income. To claim this benefit, the taxpayer must file their return within the prescribed due date under Section 139(1). Late filing will result in forfeiture of the right to carry forward the loss.
Q6. Is set-off of house property loss allowed in the new tax regime? No, under the new tax regime (Section 115BAC), inter-head set-off of house property loss is not allowed. While taxpayers can still record the loss in their ITR, they cannot use it to offset salary, business, or other income in the same financial year. However, the loss can still be carried forward for up to eight assessment years for intra-head adjustment—meaning it can only be used to offset income from house property in future years. This is one of the key differences between the old and new regimes, and taxpayers should evaluate their deductions before choosing the regime.
Q7. Can carried-forward losses be set off against business or salary income later? No, carried-forward house property losses cannot be adjusted against salary or business income in subsequent years. They can only be used to offset income from house property in the future. For instance, if you carry forward a ₹2 lakh house property loss and earn ₹2.5 lakh as rent in a later year, you can use the carried-forward loss to reduce taxable house property income to ₹50,000. It’s important to maintain a record of such losses and ensure they are reported every year in the ITR to keep the benefit active.
Q8. How should losses from multiple house properties be adjusted? If a taxpayer owns more than one property, losses from one property can be adjusted against income from another during the same year. For example, if Property A earns ₹2 lakh as rent and Property B incurs a ₹4 lakh loss due to loan interest, the net house property loss is ₹2 lakh, which can be set off against other income under the old regime. This is called inter-property adjustment and is allowed before applying the ₹2 lakh inter-head set-off cap. Any remaining unadjusted loss can be carried forward for future years, where it can only offset house property income.
Q9. Where to report house property loss in ITR? House property loss must be reported in the “Income from House Property” section of the ITR form. Taxpayers must mention details like the property type (self-occupied, let-out, or deemed let-out), annual rental income, municipal taxes paid, and the interest on home loan. The system will automatically calculate the loss or gain. When claiming a carry-forward, ensure the loss amount is correctly reflected under the “Schedule CFL” section. To prevent mismatches, keep supporting documents such as the interest certificate from your lender, loan account statements, and property details ready for verification.
Q10. Are self-occupied property losses eligible for set-off? Yes, losses from self-occupied properties are eligible for set-off under the old tax regime, but only up to ₹2 lakh per financial year. This usually arises when the interest on a home loan exceeds the permissible income value (which is zero for self-occupied properties since they don’t generate rent). The taxpayer can claim this interest deduction and adjust it against other income heads within the ₹2 lakh limit. However, this benefit is not available under the new regime, where all such deductions are disallowed in exchange for lower tax rates.
Q11. Can NRIs claim house property loss set-off? Yes, Non-Resident Indians (NRIs) can also claim house property loss set-off and carry-forward benefits under the same rules applicable to residents, provided they file their Indian ITR. NRIs earning rent from properties in India or paying housing loan interest on Indian property are eligible for this deduction. However, they must ensure compliance with Indian tax laws, including the disclosure of foreign income and assets if applicable. NRIs must also file their ITR before the due date to carry forward any unadjusted loss for future years.
Q12. How can TaxBuddy help with house property loss reporting? TaxBuddy simplifies the process of claiming and reporting house property losses through its AI-driven tax filing platform. It automatically identifies allowable deductions, applies the ₹2 lakh set-off rule under Section 71, and calculates the correct carry-forward balance. Users receive real-time validation and error detection to prevent mismatches with the AIS or Form 26AS. For those with multiple properties or complex income sources, TaxBuddy’s experts review the filings and ensure full compliance with current tax laws. This not only saves time but also ensures accurate and stress-free ITR filing every year.
