If you have a loss from one house property, you can adjust it against income from another house property
The New Income Tax Bill 2025, which aims to replace the Income Tax Act 1961, seeks to simplify and simplify tax rules.
We take a look at some tax aspects regarding the sale of property.
Carry Forward Of Losses From House Property
If you have a loss from one house property, you can adjust it against income from another house property. If there’s still a loss after this, you can set it off against income from other sources, but only up to ₹2 lakh a year. Any loss beyond ₹2 lakh cannot be adjusted against other income in the same year.
“The remaining loss (unabsorbed loss) can be carried forward for the next eight years, but it can only be adjusted against income from the house property in those years. It cannot be used to reduce income from salary, business, or other sources in subsequent years,” says Rahul Singh, senior manager, Taxmann, a tax and corporate advisor.
Let us take an example. Amit has a salary of ₹7 lakhs. During the year, he incurred a loss of ₹3.5 lakhs under the head IHP. This loss can be adjusted against Amit’s income from salaries to the extent of 2 lakhs.
Therefore, Amit’s ‘Income from Salary’ will be ₹5 lakhs ( ₹7 lakh – ₹2 lakh), and the excess of 1.5 lakh loss under the head IHP can be carried forward to the next year. However, in the next year, the loss can only be set off against income under the head IHP. If Amit has no income under the head IHP, this amount can be carried forward for the next eight years. “However, it appears that there is a drafting error, as provisions of sub- clause (3) of Clause 110 inadvertently makes reference to Section 107 instead of 109. This anomaly needs to be rectified before the bill becomes the act,” says Rohit Garg, Partner, Shardul Amarchand Mangaldas and Co, a law firm.
Capital Gains Exemption On Property Sale
“Capital gains exemption is provided under Clause 54 (New Section 82) in cases where the assessee, before one or after two years of the date of transfer, purchases a new house. In case of construction of a new house, this time limit is extended to three years,” says Garg.
There are no substantial changes between the two provisions. If the capital gains exceed the cost of the new asset, such excess will be subject to capital gains tax.
However, if the assessee tries selling the property before three years, the purchase cost would be nil, thereby substantially increasing the capital gain. “Similarly, if the capital gains are less than the cost of the new asset, no capital gains will be charged. If the asset is sold before three years, the cost will be reduced by the amount of capital gains,” says Garg. Let us take an example. Rahul sells his residential house with a capital gain of ₹50 lakhs. He purchases a new house for ₹1 crore within 2 years. In this case, since the cost of the new house exceeds the capital gains, no capital gains will be chargeable on the sale of his old house.
However, if Rahul tries selling his new residential property for ₹1.3 crore before three years, the cost of the new residential house, i.e. ₹1 crore, will be reduced by the previous capital gains which were exempt, i.e. 50 lakhs.
Therefore, the cost of acquisition for the new house will be ₹50 lakhs ( ₹1 crore – ₹50 lakhs) leading to effective capital gains of ₹80 lakhs ( ₹1.3 crore – ₹50 lakhs). If he waited until the three-year period lapsed, the capital gains would be ₹30 lakhs ( ₹1.3 crore – ₹1 crore).
