Tax Laws and Practice · Income under the Head House Property

Loss from House Property: Set Off and Carry Forward

Updated 11 October 2026 · Fact-checked

A loss under the head Income from house property can be set off against income under any other head in the same tax year, but only up to ₹2,00,000 (section 109). The balance is carried forward under section 110, set off only against house property income, for up to eight succeeding tax years.

Understand Loss from House Property: Set Off and Carry Forward

A loss under house property usually arises when the interest on borrowed capital is higher than the net annual value, or when a self-occupied property has only interest to deduct. The Act then asks two questions. First, how much of it can be used this year against other heads? Second, what happens to the rest?

The first question is answered by section 109. A loss under any head other than "Capital gains" is set off against income under any other head, including "Capital gains", for the same tax year. For house property, this is limited to ₹2,00,000 against income under any other head. Even if your loss is ₹5,00,000, you can use only ₹2,00,000 against salary, business income and so on.

The second question is answered by section 110. The loss that could not be wholly set off under section 109 is carried forward to the following tax year. There it can be set off only against income from house property. If it still cannot be fully absorbed, it moves ahead again, and so on.

There is a time limit. No loss is carried forward for more than eight tax years immediately succeeding the tax year for which the loss was first computed. After that, the unabsorbed amount lapses.

Note what the section does not say. It does not require you to own the same property in later years. The carried-forward loss is set off against income from house property, whichever property gives that income. The section also does not make carry forward conditional on filing a return in the text supplied, so do not add conditions that are not in the text provided to you.

Key rules to remember

Inter-head set off limit: Loss from house property set off against other heads ≤ ₹2,00,000; Section 109(1)(b). Applies to the aggregate house property loss of the tax year, against income under any other head.
Amount carried forward: Carry forward = House property loss − Amount set off under section 109; Section 110(1). The balance is carried to the next tax year.
Where carried loss can be set off: Only against income from house property of the following tax years; Section 110(1)(a). It cannot be set off against salary, business, capital gains or other sources.
Time limit: Maximum 8 tax years immediately succeeding the tax year of the loss; Section 110(2). The loss lapses after that.
Order of use in a later year: Current year house property income first absorbs brought-forward loss; unabsorbed balance moves on; Section 110(1)(b). Track the balance year by year.

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

Use this order for any question on house property loss. Work the loss first, then the limit, then the carry forward.

1Compute income or loss from each house property. Set off the loss from one property against income from another house property to get the net figure under the head House property for the tax year.
2If the net figure is a loss, apply section 109: set it off against income under other heads, including Capital gains, only up to ₹2,00,000. Do not set off against any head beyond that cap.
3Compute the balance loss: total loss minus the amount set off. This is carried forward under section 110.
4In the next tax year, set off the brought-forward loss only against income from house property. Record any unabsorbed balance.
5Repeat each year, and stop when the loss is fully used or when eight tax years have passed since the year of loss.
6Write the conclusion: state the amount set off, the amount carried forward, the section and the last year of carry forward.

Quickest way: Cap, balance, house property only

When to use it: Use this in numerical questions where you must show the set off and the carry forward quickly.

Write the loss. Deduct ₹2,00,000 (or the loss, if smaller) as the set off against other heads.
The remainder is the carry forward. Write the section 110 label beside it.
In each later year, deduct the carried loss only from house property income. Never from other heads.
Mark the year of lapse: first loss year plus eight tax years.

Common mistakes in Loss from House Property: Set Off and Carry Forward

Setting off the whole house property loss against salary or business income.
Students remember that losses can be set off between heads and forget the cap.
Fix: Always apply the ₹2,00,000 limit under section 109(1)(b) before anything else.
Setting off the carried-forward loss against income from other heads in a later year.
Students confuse the current year rule with the carry forward rule.
Fix: Under section 110(1)(a), brought-forward house property loss goes only against house property income.
Using a four-year limit for the carry forward.
Speculation business and specified activity losses have a four-year limit, so the numbers get mixed up.
Fix: House property loss is carried forward for eight tax years under section 110(2). Speculation business (section 113(3)) and specified activity (section 115(3)) losses have four years.
Applying the ₹2,00,000 cap to each property separately.
Students compute loss property by property and cap each one.
Fix: First net all properties. The cap applies once to the net loss under the head.
Counting the eight years from the year the loss is finally set off, or from the first year after the loss.
The wording 'succeeding' is read loosely.
Fix: Count eight tax years immediately after the tax year in which the loss was first computed. The loss year itself is not counted.
Forgetting that capital gains can absorb the ₹2,00,000 set off.
Students think capital gains are excluded from inter-head set off.
Fix: Section 109(1) says set off is against any other head 'including Capital gains'. It is the capital gains loss that cannot go against other heads (section 109(2)).

Worked examples

Example 1

For the tax year 2026-27, Mr. Rohan Mehta has a loss of ₹3,50,000 under house property (self-occupied flat, interest on housing loan). His income from salary is ₹9,00,000. He has no other income. Compute the set off in 2026-27 and the loss to be carried forward.

Show the solution

Loss under house property = ₹3,50,000.
Section 109(1)(b) allows set off against other heads only up to ₹2,00,000.
Set off against salary = ₹2,00,000. Income from salary after set off = ₹9,00,000 − ₹2,00,000 = ₹7,00,000.
Balance loss = ₹3,50,000 − ₹2,00,000 = ₹1,50,000.
Under section 110(1), this ₹1,50,000 is carried forward to the following tax year.

Answer: ₹2,00,000 is set off against salary in 2026-27. ₹1,50,000 is carried forward under section 110, to be set off only against house property income, for up to eight succeeding tax years.

Example 2

Continuing from the previous example, in 2027-28 Mr. Mehta has income from house property of ₹40,000 (from a let-out shop, after deductions) and salary of ₹10,00,000. Compute the set off of the brought-forward loss and the balance to be carried forward. Up to which tax year can the balance be carried forward?

Show the solution

Brought-forward loss from 2026-27 = ₹1,50,000.
Under section 110(1)(a), it can be set off only against house property income of 2027-28, which is ₹40,000.
Set off = ₹40,000. House property income after set off = ₹0.
Balance = ₹1,50,000 − ₹40,000 = ₹1,10,000. Under section 110(1)(b), it is carried forward again.
Salary of ₹10,00,000 is not reduced by the brought-forward loss.
The loss was first computed for 2026-27. Eight succeeding tax years are 2027-28 to 2034-35.

Answer: ₹40,000 is set off against house property income in 2027-28. ₹1,10,000 is carried forward and can be set off only against house property income up to tax year 2034-35, after which any unabsorbed amount lapses.

Exam tips

Write the section number with each step: section 109 for the same year, section 110 for carry forward. ICSI answers reward the provision, the working and a clear conclusion.
Always show the ₹2,00,000 cap explicitly, even when the loss is below it, to prove you applied the rule.
Keep a small year-wise table in the working for brought-forward loss, set off and balance. It stops arithmetic slips.
State the lapse year in the conclusion. Questions often ask 'up to which year'.
Revise the neighbouring rules together: four years for speculation losses (section 113(3)) and specified activity losses (section 115(3)), eight years for business loss (section 112(2)) and capital loss (section 111(2)). Examiners test these contrasts.

Practice questions from Income under the Head House Property

Loss from House Property: Set Off and Carry Forward in other exams

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

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

What is the limit for setting off house property loss against other heads?

It is ₹2,00,000 for the tax year under section 109(1)(b). This applies to income under any other head, including capital gains. The rest of the loss is carried forward.

How many years can house property loss be carried forward?

Up to eight tax years immediately succeeding the tax year in which the loss was first computed, under section 110(2). After that, any unabsorbed loss lapses.

Can a carried-forward house property loss be set off against salary?

No. Under section 110(1)(a), the carried-forward loss can be set off only against income from house property of the later tax years.

Does the carried-forward loss need to relate to the same property?

The text of section 110 refers only to income from house property assessable for that tax year. It does not tie the loss to the same property. So income from any house property of the assessee can absorb it.