Loss from Home Property: Guide to Calculate, Tax deduction and More!

The head of income used in the Income Tax Act to describe the income produced by taxpayers from owning immovable properties is referred to as “House Property.” This category of income might show either a profit or a loss. If the taxpayer incurs an income loss from house property, the loss might be offset against other income generated in the same fiscal year. However, the assesses may have no other sources of income – so, loss from the house property can be set off against nothing, or that the other sources of income are insufficient. Loss from house property can be carried forward and set off in future assessment years in these instances.

If a loss from house property set off against the same or different headings in the same assessment year is unable to happen, the loss might be carried forward and claimed as a set-off against future assessment years’ income. House property losses can be entirely deducted from other sources of income in the same assessment year. Loss from the self-occupied property, on the other hand, cannot be set off or was not fully set off, although it can be carried forward for up to eight assessment years. Loss from house property (self-occupied) that is carried forward can be offset against “Income from House Property” in future years.

What is Loss from House Property?

The maximum loss from house property is mostly due to a claim for a deduction for interest paid on borrowed capital used to acquire or develop the house property. If you buy or build a house with your own money and don’t use any borrowed money, you won’t have to pay interest. Thus, there won’t be a deduction for interest on borrowed money.
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When a home is self-occupied, the Gross Annual Value is set to ‘Nil.’ If you buy or build a house using borrowed money, you can’t claim a deduction for the interest you pay because you’ll be losing money. This is common in the majority of people’s cases; loss under the head house property is the name for this type of loss. The situation is similar in the case of a rented dwelling. If let-out house property is purchased or built with borrowed funds, and the interest cost exceeds the ‘Net Annual Value of the property, a loss will occur. When a house property loss set-off is rented out, its Gross Annual Value is equal to the property’s rental value (the higher of the real rental value or considered rental value) as indicated above.

The method for computing Income or Admissible Loss from House Property in ITR

Gross Annual Value (Rent received or expected rent (Nil in case of self-occupied property))

Less: Municipal or other local taxes paid on the property

= Net Annual Value

Less: Deductions u/s 24

Statutory deduction at 30 per cent of the Net Annual Value (NAV)

Interest paid on home loan

= Income or loss under the head House Property

This is how to show loss from house property in itr 2. 

All the Information on How to Calculate the Loss on House Property

Income tax loss from house property can be calculated if you have the relevant information. To give you a better insight into this, below is a detailed explanation to know about the loss of house property in Section 24.

If the owner or the family lives in the residence, they can claim a deduction of up to Rs 2 lakh on their home loan interest rate. When the house is empty, the same technique is applied to set off a loss from house property. The entire home loan interest can be deducted if the property has been rented out and this property is deemed let out property.

If any of the following circumstances are met, your interest deduction is limited to Rs. 30,000 instead of Rs. 2 lakhs:
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Condition 1

• The loan was obtained on or after April 1, 1999, and the purchase or construction was not completed within five years of the end of the fiscal year in which the loan was obtained.

Condition 2

• If before April 1, 1999, the loan was taken out.

Condition 3 

• The loan was accepted on or after April 1, 1999, for house repairs or renewal.

How do I claim a tax deduction on a loan taken before the construction of the property is complete?

How to claim loss from house property you ask? The interest on a loss from house property cannot be deducted while the house is being built. It can only be claimed once the construction is completed. Pre-construction refers to the time between borrowing money and starting construction on a house. Interest paid during this period can be claimed as a tax deduction in five equal instalments beginning with the year the property is completed.

Tax Benefits on Home Loans for Joint Owners

For a self-occupied property, each co-owner who is also a co-applicant in the loan can claim a maximum deduction of Rs 2,00,000 in their Income Tax Return for interest on the house loan. The entire interest paid on the loan is divided among the owners in proportion to their ownership. The total interest claimed by the owners/borrowers cannot, of course, exceed the total interest paid on the loan.
Read: The Subvention Scheme: Meaning, Importance,and More

When Does the Rs 30,000 Deduction Come into Action?

As previously stated, the deduction for home loan interest would be limited to Rs. 30,000 if the property is not finished within 5 years. The five-year period begins on the last day of the financial year in which the loan was taken out. So, if the loan was acquired on April 30, 2015, the property’s development should be finished by March 31, 2021. (Before FY 2016-17, the stipulated length was three years, but was expanded to five years in Budget 2016). Note that the interest deduction can only be claimed beginning in the fiscal year in which the property is completed.

How do I Claim a Tax Deduction for a Loan Received Before the Property is Finished Being Built?

How to claim loss from house property you ask? The interest on a loss from house property cannot be deducted while the house is being built. It can only be claimed once the construction is completed. Pre-construction refers to the time between borrowing money and starting construction on a house. Interest paid during this period can be claimed as a tax deduction in five equal instalments beginning with the year the property is completed.

Reasons for Loss from House Property

The loss from house property let out can be caused by two factors, which are outlined below.

• Self-occupied property: If you own the property and live in it, the property’s Gross Annual Value is zero. Because you are not receiving any rent or income from self-employment, the property taxes paid and the interest on the loan will result in a loss from house property in income tax under this area. The highest deduction for interest on a home loan that an assessee can make under section 24 of the Income Tax Act is Rs.1.5 lacs.
• Loss of income from a rented property: The Gross Annual Value will not be zero if the property has been rented out. If the total of the deductions claimed under multiple heads exceeds this amount, it will be considered a loss of house property set off.

Treatment of house property loss set off for taxation

• You can use it for set-off of house property loss if you have a loss from your home property but make money from any of the other five categories of income: salary/house real estate or profession/capital gains/other sources.
• The Finance Act of 2017 made a change for such losses, effective in 2018-19. The loss from residential property that a taxpayer can take off against Income from Other Heads is limited to Rs 2 lakhs each fiscal year.ie this is the house property loss set-off limit. To set off, you can carry forward the remaining loss amount to the next fiscal year.
• It is important to remember, however, that a house property loss set-off is achievable with any other income head in the same fiscal year. If you carry it forward to the following year, you can only deduct the loss from your income from house property for that tax year.
• Furthermore, the taxpayer will be unable to carry the balance loss forward for the next eight years. If there is income in a residence in any of the years, the taxpayer must set off the upset in that year.

Deduction for principal repayment

You can exclude up to Rs 150,000 from the overall Section 80C of the income tax act limit. It is only possible if you have got a home loan to buy or build a new house. Furthermore, you cannot transfer the property within five years after taking control of it. If you do, the deduction will be applied retroactively to your income.

For Tax Purposes, how is Loss from House Property Treated?

Losses from residential property will be allowed to be offset against income from other sources within a certain assessment year. According to the IT Act, this loss can be offset by the income reported under other headings, such as salary, business or profession, capital gains, or other sources. After deducting the losses, the remaining income would be taxable according to the IT slabs.

The term ‘Loss from Home Property’ refers to when the income from house property is negative. The benefit of ‘Loss from Home Property’ is that it helps to reduce taxable income by allowing loss from house property to be set off against other sources of income. Losses that cannot be offset against other sources of income are allowed to be carried forward and offset in subsequent years. Want to know more, head to NoBroker Forum. If you are looking for a house just head to NoBroker and pay zero brokerage.

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