Direct and Indirect Taxation · Income from House Property

Set Off and Carry Forward of House Property Loss

Updated 10 October 2026 · Fact-checked

Loss under house property is first set off against income from other house properties. Any balance can be set off against other heads only up to ₹2,00,000 in a tax year. The rest is carried forward and set off only against house property income for up to eight succeeding tax years, under section 110.

Understand Set Off and Carry Forward of House Property Loss

A loss under the head "Income from house property" usually arises when interest on a housing loan is more than the annual value of the property. For a self-occupied house it arises because interest is allowed as a deduction while there is no income.

The law handles this loss in three layers. First, you net all your house properties against each other. Income from one property absorbs the loss of another. Only the net result matters.

Second, if the net result is still a loss, you may set it off against income under other heads, such as salary, business or other sources. This inter-head set off is capped at ₹2,00,000 for the tax year. The cap applies to the loss of the current year being set off against other heads.

Third, whatever is left is carried forward under section 110. It can be set off only against income from house property of the following tax years. If it is not fully used, it moves forward again. No loss can be carried forward beyond eight tax years immediately succeeding the tax year in which the loss was first computed.

Section 110 itself says the loss is carried forward when it "cannot be wholly set off against the income under any other head as per section 109". So section 109 is the inter-head set off rule, and section 110 deals with the balance. The ₹2,00,000 limit is part of the inter-head set off rule; confirm its exact wording in your study material.

Key rules to remember

Net loss under house property: Net loss = Total of losses of all properties − Total of income of all properties (same tax year); Net all house properties first. Only a net loss goes forward to the next steps.
Inter-head set off limit: Set off against other heads = lower of (net house property loss, ₹2,00,000); Applies to the current year's loss set off against salary, business, capital gains or other sources.
Amount carried forward: Carry forward = Net house property loss − Amount set off against other heads; This is the balance that section 110 allows you to carry forward.
Set off in later years: Set off = lower of (brought forward loss, house property income of that year); Only against income from house property. No ₹2,00,000 cap applies to this set off.
Time limit (section 110(2)): Maximum carry forward period = 8 tax years immediately succeeding the tax year of loss; A loss of tax year 2026-27 can be carried to tax years 2027-28 up to 2034-35.

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

Use the same order every time. It keeps the question clean and earns step marks.

1Compute income or loss of each house property separately, after the standard deduction and interest, as the question requires.
2Add them up to get the net result under the head. If it is income, there is no loss to set off or carry forward.
3If it is a net loss, set it off against other heads of the same tax year, limited to ₹2,00,000.
4Show the revised gross total income: add up the other heads and deduct the loss set off.
5Compute the balance loss to be carried forward: net loss less amount set off.
6For later years, set off the brought forward loss only against house property income of that year.
7Carry any unabsorbed balance forward again, and check the eight-year limit counted from the year the loss first arose.
8State clearly the closing balance and the last tax year in which it can be used.

Quickest way: Three-line check: Net, Cap, Carry

When to use it: Use it for short MCQs and for the first half of any numerical question.

Net: add all house property results and get one figure.
Cap: set off against other heads the lower of the net loss and ₹2,00,000.
Carry: balance goes forward, usable only against house property income, for eight tax years from the first year.
In later years, set off equals the lower of the brought forward loss and that year's house property income.

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

Setting off the full loss against salary or other heads without applying the ₹2,00,000 limit.
Students remember that inter-head set off is allowed and forget the cap that applies to this head.
Fix: Always write the line: set off against other heads = lower of net loss and ₹2,00,000.
Carrying forward the balance and setting it off against business or salary income in later years.
Students confuse house property loss with business loss, which can go against business or profession income.
Fix: Remember section 110(1)(a): the carried forward loss goes only against income from house property.
Using four years as the carry forward period.
Four years applies to speculation business loss under section 113 and specified activity loss under section 115, so the numbers get mixed up.
Fix: House property loss is eight tax years immediately succeeding the year of loss, as in section 110(2).
Carrying forward each property's loss separately without netting.
Students treat each property as a separate source for carry forward.
Fix: Net all properties for the tax year first. Only the net loss is set off or carried forward.
Carrying forward the full loss even after part has been set off against other heads.
Students forget that the amount set off in the current year reduces the loss.
Fix: Carry forward = net loss − amount already set off. Show it as a separate working line.
Applying the ₹2,00,000 cap to the set off of brought forward loss against house property income of a later year.
The cap is remembered as a general limit on this head.
Fix: The cap applies to the inter-head set off. Brought forward loss is set off against house property income in full, up to that income.

Worked examples

Example 1

Rahul has salary income of ₹9,00,000 for tax year 2026-27 and a net loss under house property of ₹3,50,000. In tax year 2027-28 his income from house property is ₹40,000. Show the set off and carry forward.

Show the solution

Net loss under house property for 2026-27 = ₹3,50,000.
Set off against salary = lower of ₹3,50,000 and ₹2,00,000 = ₹2,00,000.
Gross total income 2026-27 = ₹9,00,000 − ₹2,00,000 = ₹7,00,000.
Loss carried forward = ₹3,50,000 − ₹2,00,000 = ₹1,50,000.
In 2027-28, house property income is ₹40,000. Set off brought forward loss = lower of ₹1,50,000 and ₹40,000 = ₹40,000.
Income from house property after set off = ₹0.
Balance carried forward = ₹1,50,000 − ₹40,000 = ₹1,10,000.
Time limit: this loss can be carried forward up to tax year 2034-35, the eighth year after 2026-27.

Answer: Gross total income for 2026-27 is ₹7,00,000 and ₹1,50,000 is carried forward. In 2027-28, ₹40,000 is set off, leaving ₹1,10,000 to carry forward, usable only against house property income up to tax year 2034-35.

Example 2

For tax year 2026-27, Meera has two let-out properties. Property A gives income of ₹60,000 and Property B shows a loss of ₹2,70,000. Her salary is ₹8,00,000. Find the gross total income and the loss to be carried forward.

Show the solution

Net the properties: ₹60,000 − ₹2,70,000 = net loss of ₹2,10,000.
Set off against salary = lower of ₹2,10,000 and ₹2,00,000 = ₹2,00,000.
Gross total income = ₹8,00,000 − ₹2,00,000 = ₹6,00,000.
Loss carried forward = ₹2,10,000 − ₹2,00,000 = ₹10,000.
This ₹10,000 can be set off only against house property income of the next tax years, within eight tax years.

Answer: Gross total income is ₹6,00,000. Loss of ₹10,000 is carried forward under section 110 against future house property income only.

Exam tips

Write the netting of all properties as your first line. Examiners look for it.
Show the ₹2,00,000 comparison explicitly as a lower-of working, even when the loss is below the cap.
Keep a separate carry forward table by tax year when the question runs over several years.
In MCQs, watch for the traps: other heads, four years, and no cap on later set off against house property income.
State the last tax year of carry forward when the question asks about the time limit.

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

How many years can house property loss be carried forward?

For up to eight tax years immediately succeeding the tax year in which the loss was first computed. This is stated in section 110(2). A loss of tax year 2026-27 can be used up to tax year 2034-35.

Can I carry forward house property loss and set it off against salary later?

No. Under section 110(1)(a), the carried forward loss can be set off only against income from house property of the following tax years. Only the current year's loss can be set off against other heads, subject to the ₹2,00,000 limit.

What is the ₹2,00,000 limit for house property loss?

It caps the amount of the current year's house property loss that can be set off against income under other heads in the same tax year. Any balance goes forward under section 110. Check the exact wording of the inter-head set off rule in your study material.

Is there a ₹2,00,000 cap when set off against house property income in later years?

No. The cap applies to inter-head set off. In later years, the brought forward loss is set off against house property income of that year, up to the amount of that income.