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Taxation · Income from House Property

Set Off and Carry Forward of House Property Loss

Updated 4 October 2026 · Fact-checked

A house property loss is first set off against income from other house properties. Any balance can be set off against income under other heads only up to ₹2,00,000 in a tax year. The rest is carried forward for up to eight tax years and set off only against house property income.

Understand Set Off and Carry Forward of House Property Loss

A loss under the head Income from House Property arises when the interest on borrowed capital (and other deductions) is more than the net annual value. It is most common with a self-occupied house, where there is no income but interest is deductible, and with a let-out house bought on a loan.

The law deals with this loss in three layers. First, you set it off within the same head. A loss on one property is adjusted against income from another house property. This is intra-head set off and it has no money limit.

Second, if a net loss still remains under the head, you may set it off against income under other heads, such as salary or business income. This is inter-head set off, and it is capped at ₹2,00,000 for the tax year. The cap applies to the total loss, whether it comes from a self-occupied or a let-out property.

Third, whatever is left after the cap is carried forward to the next tax year. It can be carried forward for eight tax years immediately following the tax year in which the loss was computed. In those years it can be set off only against income from house property, not against salary, business or any other head. Use the oldest loss first if there is more than one.

The ₹2,00,000 cap exists to stop large interest-driven losses from wiping out tax on salary and other income. Check the tax regime in the question. Under the default (new) regime, you cannot set off house property loss against other heads, so the whole loss is carried forward. The inter-head set off described here applies when the question treats the individual as under the old regime.

Key rules to remember

Intra-head set off
Net HP income = Σ income of profitable properties − Σ loss of loss-making properties
Done first, with no limit. Do this before looking at any other head.
Inter-head set off limit
Loss set off against other heads = lower of (net HP loss, ₹2,00,000)
Applies per tax year, to the combined loss from all house properties. Not allowed where the question applies the default regime.
Loss to carry forward
Carried forward = Net HP loss − amount set off against other heads
Carried forward loss is set off in later years only against house property income.
Carry forward period
Up to 8 tax years immediately following the tax year in which the loss was computed
Set off in the earliest year possible; the oldest loss is adjusted first.
Set off of brought forward loss
Brought forward HP loss set off = lower of (brought forward loss, current year HP income)
Never reduce salary or other heads with brought forward HP loss.

How to solve Set Off and Carry Forward of House Property Loss questions

Use this order for any problem. It keeps current year loss, limit and carry forward separate, so the examiner can give you step marks.

  1. 1Compute income or loss for each house property separately, after the standard deduction and interest deduction. Write each as a positive income or a negative loss.
  2. 2Set off losses against income of other house properties (intra-head). Get one net figure for the head.
  3. 3If the net figure is income, stop. If it is a loss, check the regime given in the question.
  4. 4Under the old regime, set off the lower of the net loss and ₹2,00,000 against income under other heads, such as salary, business and other sources. Under the default regime, no inter-head set off is allowed.
  5. 5Carry forward the balance of the loss, with the tax year in which it arose. Note it can be used only against house property income for eight tax years.
  6. 6In later years, first set off the brought forward loss against that year's house property income. Then deal with any current year loss using steps 1 to 5.
  7. 7Show the revised income under each head and add the heads to get gross total income.

Quickest way: Three-line check for MCQs and written answers

When to use it: Use when a question gives property figures and asks for taxable salary, gross total income or loss carried forward.

  1. MCQs: net all properties first. Then take the lower of the net loss and ₹2,00,000 for the other heads. The balance is the carry forward answer. Eliminate any option that sets off brought forward loss against salary.
  2. Check the years. If the question asks about a ninth year after the loss year, the loss has lapsed.
  3. Written answers: use a small table with columns for Property 1, Property 2, Net HP income, Set off against other heads, and Carried forward. Label each line. Even if your arithmetic slips, the method earns step marks.

Common mistakes in Set Off and Carry Forward of House Property Loss

  • Setting off the full house property loss against salary

    Students remember that losses can be set off between heads but forget the cap.

    Fix: Always write 'limit ₹2,00,000' as a step. Set off the lower of the loss and ₹2,00,000.

  • Applying the ₹2,00,000 limit to each property separately

    The limit is read as a per-house deduction limit, like the interest limit for a self-occupied house.

    Fix: First net all properties. Apply the ₹2,00,000 limit once, to the net loss of the head.

  • Setting off a brought forward house property loss against salary or business income

    Students mix it up with the set off of current year loss.

    Fix: Brought forward house property loss goes only against house property income. Current year loss alone can go against other heads, up to the limit.

  • Carrying forward the loss for an unlimited period, or for 4 years

    Students confuse it with unabsorbed depreciation or with the 4-year rule for other losses.

    Fix: Remember eight tax years after the loss year, for house property loss.

  • Skipping intra-head set off and carrying forward a loss of one property while another property has income

    Each property is solved in isolation.

    Fix: Net the properties before any other step. Only the net loss is considered for inter-head set off or carry forward.

  • Ignoring the regime stated in the question

    Students apply the old-regime set off by habit.

    Fix: Read whether the individual follows the default regime. If so, do not set off the loss against other heads; carry it forward.

Worked examples

Example 1

Tax year 2026-27. Mr. Arun (old regime) has salary income of ₹10,00,000 after the standard deduction. He owns a self-occupied house with interest on borrowed capital of ₹1,50,000 and a let-out house with gross annual value ₹3,00,000, municipal tax paid ₹20,000 and interest on borrowed capital ₹4,10,000. Compute the income under each head and the house property loss to be carried forward.

Show the solution
  1. Self-occupied house: annual value is nil. Loss = interest ₹1,50,000. Income = (₹1,50,000).
  2. Let-out house: GAV ₹3,00,000 − municipal tax ₹20,000 = NAV ₹2,80,000.
  3. Standard deduction at 30% of NAV = ₹84,000. NAV − standard deduction = ₹1,96,000.
  4. Less interest ₹4,10,000. Income = (₹2,14,000).
  5. Intra-head set off: (₹1,50,000) + (₹2,14,000) = net loss (₹3,64,000).
  6. Inter-head set off: lower of ₹3,64,000 and ₹2,00,000 = ₹2,00,000 against salary.
  7. Salary after set off = ₹10,00,000 − ₹2,00,000 = ₹8,00,000.
  8. Carry forward = ₹3,64,000 − ₹2,00,000 = ₹1,64,000.

Answer: Income from house property: nil (loss of ₹2,00,000 set off). Salary income: ₹8,00,000. House property loss of ₹1,64,000 is carried forward, to be set off only against house property income of the next eight tax years.

Example 2

Continuing the example, Mr. Arun's house property income (after all deductions) is ₹1,20,000 in tax year 2027-28 and ₹70,000 in tax year 2028-29. His salary is ₹9,00,000 in each year. Show the set off of the brought forward loss and the income that is taxable under the head in each year.

Show the solution
  1. Tax year 2027-28: brought forward loss ₹1,64,000; current year HP income ₹1,20,000.
  2. Set off = lower of ₹1,64,000 and ₹1,20,000 = ₹1,20,000. Income from house property after set off = nil.
  3. Loss still to be carried forward = ₹1,64,000 − ₹1,20,000 = ₹44,000. Salary is not reduced.
  4. Tax year 2028-29: brought forward loss ₹44,000; current year HP income ₹70,000.
  5. Set off = ₹44,000. Income from house property = ₹70,000 − ₹44,000 = ₹26,000.
  6. No loss remains to be carried forward. The loss was used within the eight-year window.

Answer: Tax year 2027-28: income from house property nil, ₹44,000 loss carried forward. Tax year 2028-29: income from house property ₹26,000, no loss left. Salary stays at ₹9,00,000 in both years.

Exam tips

  • Treat the problem as a three-part answer: intra-head result, inter-head set off up to ₹2,00,000, carry forward. Show each as a separate line.
  • Read the regime in the question first. It decides whether the ₹2,00,000 inter-head set off is available at all.
  • In multi-year problems, use a year-wise table with opening loss, set off and closing loss. It makes the eight-year check easy.
  • In MCQs, watch for options that set off brought forward house property loss against salary or that use a ninth year. Both are wrong.
  • When a self-occupied house is involved, remember its loss equals the allowed interest, and that figure joins the net loss before the ₹2,00,000 cap.

Practice questions from Income from House Property

Set Off and Carry Forward of House Property Loss in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Set Off and Carry Forward of House Property Loss: frequently asked questions

What is the limit for set off of house property loss against other income?

The limit is ₹2,00,000 in a tax year. It applies to the net loss under the head after you set off losses and income from all house properties. This applies where the old-regime set off is allowed.

How many years can a house property loss be carried forward?

Up to eight tax years immediately following the tax year in which the loss was computed. The loss is set off in the earliest year possible.

Can I set off house property loss against salary income?

Only a current year loss can be set off against salary, and only up to ₹2,00,000 (where the old regime is applied). A brought forward loss cannot be set off against salary; it goes only against house property income.

Does the section number matter in the exam?

Students often search by section number, but exam answers mainly depend on stating the rule correctly. Quote a section number only when you are sure it is the one in the Income-tax Act, 2025. Otherwise state the rule in words.