Yes, a loss can arise under “Income from House Property” due to high interest on home loans or low rental income, even though the Annual Value (AV) itself cannot be negative.
How Loss Occurs in House Property Income
- Self-Occupied Property (SOP)
- Annual Value (AV) = ₹0(since it’s self-occupied).
- Deduction: Interest on Home Loan (Section 24(b))→ Max ₹2 lakh/year (if loan taken after 1-4-1999).
- Result:
- If interest = ₹2.5 lakh → Deduction capped at ₹2 lakh.
- Taxable Income = ₹0 – ₹2 lakh = (₹2 lakh) [Loss].
- Let-Out Property (LOP) or Deemed Let-Out
- AV = Higher of Actual Rent or Expected Rent(always ≥ ₹0).
- Deductions:
- 30% Standard Deduction(Section 24(a)).
- Uncapped Interest on Home Loan(Section 24(b)).
- Result:
- If deductions (interest + 30%) > NAV → Loss arises.
- Example:
- NAV = ₹1,00,000
- Interest = ₹1,50,000
- 30% Std. Deduction = ₹30,000
- Taxable Income = ₹1,00,000 – ₹30,000 – ₹1,50,000 = (₹80,000) [Loss].
Key Rules for Loss Adjustment
- Set-Off Against Other Heads of Income(Section 71):
- Max ₹2 lakh/yearcan be adjusted against salary/business income.
- Example:Loss of ₹3 lakh → ₹2 lakh adjusted in current year; ₹1 lakh carried forward.
- Carry Forward for 8 Years(Section 71B):
- Unadjusted loss can be carried forward to future years only against “Income from House Property”.
- No Loss for SOP Beyond ₹2 Lakh:
- If interest = ₹3 lakh → Only ₹2 lakh deductible (remaining ₹1 lakh lapses).
Practical Example
Scenario: Let-out property with:
- Gross Annual Value = ₹2,40,000
- Municipal Taxes = ₹40,000
- NAV = ₹2,00,000
- Interest on Loan = ₹2,50,000
- 30% Std. Deduction = ₹60,000
Calculation:
₹2,00,000 (NAV) – ₹60,000 (30%) – ₹2,50,000 (Interest) = ₹(1,10,000) Loss
Tax Treatment:
- ₹2 lakh adjusted against salary (if available).
- Balance ₹(10,000) carried forward.
Exceptions Where Loss is NOT Allowed
- Property Used for Business→ Taxed under “Profits & Gains from Business.”
- Property Held as Stock-in-Trade(for builders) → Exempt under Section 23(5).
