If you have a home loan and want to pay less in taxes, you should consider claiming a loss from house property. This loss can be used to lower your other incomes, which may reduce the amount of tax you have to pay. However, there are certain rules you need to follow if you want to use this loss to offset other incomes. Keep reading to find out more about these rules.
When can you use house property losses to lower your taxable income?
You can use a loss from house property to lower your taxable income under these rules:
- No limit for rental properties: If you have losses from renting out a property, you can set off that loss against your rental income without any limit.
- Rs 2 lakh limit for other incomes: If your house property loss is more than Rs 2 lakh, you can only offset Rs 2 lakh against your other types of income.
- Carrying forward losses: If your loss exceeds Rs 2 lakh, you can carry forward the extra loss for up to 8 years if you file your taxes under the old tax regime.
- New tax regime restrictions: Under the new tax regime (section 115 BAC), you cannot set off losses from self-occupied properties against any other income or carry them forward. You also cannot deduct home loan interest for self-occupied homes.
- Let-out properties: If you have let-out properties, you can still claim deductions for home loan interest and carry forward losses related to them, even under the new tax regime.
In summary, while there are some limits, you have options depending on whether your property is rented or self-occupied.
Example
Mr. Kumar has a home loan interest expense of Rs 2 lakh on his self-occupied house and Rs 6 lakh on a rented property, which generates a taxable rent of Rs 9 lakh per year.
Under the old tax regime:
- Total interest expenses: Rs 2 lakh (self-occupied) + Rs 6 lakh (rented) = Rs 8 lakh.
- Net rental income: Rs 9 lakh (rent) – Rs 8 lakh (total interest) = Rs 1 lakh.
- Mr. Kumar pays tax on Rs 1 lakh.
Under the new tax regime:
- The Rs 2 lakh interest from the self-occupied house is not allowed as a deduction.
- Mr. Kumar can deduct the Rs 6 lakh from the rented property.
- Taxable rental income: Rs 9 lakh (rent) – Rs 6 lakh (interest) = Rs 3 lakh.
If the taxable rent from the rented property was only Rs 3 lakh:
- Mr. Kumar can only claim a deduction of Rs 3 lakh for interest from the rented property.
- The remaining Rs 3 lakh (from the Rs 6 lakh interest) would not be deductible and cannot be carried forward.
In summary, the rules for deductions vary between the old and new tax regimes, which affects Mr. Kumar’s tax liability.
If you have any carried forward losses from a self-occupied house property, you will lose them if you choose the new tax regime. So, it’s important to calculate your taxes under both the old and new tax regimes before deciding which one to pick.
Switching from the Old to the New Tax Regime
If a taxpayer moves from the old tax regime to the new one and has losses from “Income from House Property,” whether they can use those losses depends on the type of loss:
- Self-Occupied Property: If the losses come from home loan interest on a self-occupied house, the taxpayer cannot claim these losses. They will be lost immediately, meaning no deductions can be made, and they cannot be used later.
- Rented Property: If the losses are from interest paid on a rented property, the taxpayer can use those losses. However, they can only offset them against income from house property, not any other income. Any unused losses will expire and cannot be carried forward.
The deduction for home loan interest that was allowed in the old regime for rented properties (which could lead to a loss if the interest was more than the rental income) is not available in the new tax regime.
Any house property losses from previous years under the old tax regime cannot be carried forward or set off in future years if the taxpayer switches to the new regime.
