Loss from House Property: Know How to Treat

People own fixed or immovable assets such as houses and commercial properties for investment purposes. These also generate profit and loss, which they can report under the Indian Income Tax Act. It is calculated under the heading 'House Property.' The loss can be adjusted against other income generated. In this article, we will discuss the income loss from house property and how it is calculated.

What is Loss From House Property?

House property refers to the taxpayer's income from fixed assets, while loss from house property, meaning the loss incurred on the house, includes tax paid and the interest paid for the house loan taken.

What Are The Reasons For Loss From The House Property?

For many reasons, one incurs a loss on the house's property.

• The Loss From House Property, If Self-Occupied
  If you live in your own house, in other words, if the house is self-occupied, the Gross Value Added (GVA) will be nil. If you build the house using borrowed money, you pay interest. This interest constitutes one of the maximum losses from house property. The tax on the house is also counted as a loss. If the property is built or purchased using your money, there won't be any loss of interest payments. Furthermore, for FY 2019-20 onwards, two houses can be considered self-occupied, which helps save taxes.
• The Loss From House Property, If Let Out
  If the property is let out, the Gross Value Added would not be zero but equal to the rental value, as there is a value addition taking place. If the deductions here exceed the GVA, this will come as a loss from let-out property.

Must Read: Tax Benefits on Home Loan

How To Calculate Loss From The House Property Calculation?

There is a set method to calculate the loss from a house.

Step 1: Determine the GVA for the property.
It equals the rent received for a let-out property and 0 for a self-owned property.

Step 2: Deduct the taxes paid for the property and get the Net Value Added.
NAV= GVA-Iinterest payments

Step 3: Make the standard deduction of 30% of the NAV.
Section 24 of the Income Tax states a standard deductible is 30%. It excludes any other expenditure beyond the 30% limit.

Step 4: Deduct the interest rate paid on home loans during the year.

Step 5: This will finally give you a gain or loss from the house property in income tax.

What is House Property Loss Set Off For Taxation?

The loss from house property can be set off against the money gained from any other five categories of income, namely, salary, house property, business or profession, capital gains, and other sources. The Finance Act of 2017, effective from 2018-19, introduced specific alterations for such losses. The taxpayer can only take off INR 2 lakh from other income heads each financial year. The remaining loss can be carried forward to the following year.

But one thing to note is that set-off from any of the five income heads is possible for the current fiscal year. From the following year onwards, the set-off can be done only against income from house property. Furthermore, taxpayers cannot carry forward the loss for next eight years. The loss from house property set off can be done if there is income in house property in any particular year.

Conclusion

It is advisable to have a basic knowledge of some important topics relating to personal finance. In fact, keeping an eye on the latest finance news is also advised, especially when buying a new home. This way, you will be able to make the most of your housing property.

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