Restriction on set-off of loss from House property : Section 71(3A)

Section 71(3A) Restriction on set-off of loss from House property. Understand New rule as per Budget 2017 on set off of loss from House property with Practical Example. Section 71 – The set-off of loss under the head “Income from house property” against any other head of income shall be restricted to two lakh rupees for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years for next 8 years and the same can be set-off only against income from house property.

Date from which amendment is applicable – W.e.f. 1st April, 2018 and will apply in relation to assessment year 2018-19 and subsequent years

As per Budget 2017

Restriction on set-off of loss from House property Section 71 of the Act relates to set-off of loss from one head against income from another. In line with the international best practices it is proposed to insert sub-section (3A) in the said section to provide that set-off of loss under the head “Income from house property” against any other head of income shall be restricted to two lakh rupees for any assessment year. However, the unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years in accordance with the existing provisions of the Act.

This amendment will take effect from 1st April, 2018 and will, accordingly apply in relation to assessment year 2018-19 and subsequent years.

  • Anuraag Singhaal CA (2005) & CPA (USA)(2008)
  • 11 Years of Work Experience with PwC (Big 4), Deloitte (Big 4), Reliance Industries Group
  • Best-in-class Faculty for Direct Taxes (DT) CA Final
  • For Batches & Sessions, contact at 9582039221 [/author]

Restriction on set-off of loss from House property : Section 71(3A)

Comprehensive Practical Illustration and Impact of this Amendment

Allocation of Principal and Interest is provided in the below table: – this is done based on EMI calculator – ONLY INTEREST ELEMENT IS RELEVANT FOR

DISCUSSION –PL NOTE INTEREST COMPUTATION IS NOT RELEVANT – the below table is presented for complete analysis so that you can understand that how much interest would be paid over 15 years

YearPrincipalInterestTotal Payment in Each Yr.Principal Outst.
20172,76,7379,05,32711,82,06497,23,262
20183,32,1519,57,37712,89,52893,91,112
20193,66,9309,22,59712,89,52790,24,181
20204,05,3528,84,17512,89,52786,18,829
20214,47,7988,41,72812,89,52681,71,030
20224,94,6897,94,83712,89,52676,76,341
20235,46,4887,43,03712,89,52571,29,852
20246,03,7136,85,81212,89,5256,526,138
20256,66,9306,22,59412,89,52458,59,208
20267,36,7675,52,76012,89,52751,22,441
20278,13,9174,75,61112,89,52843,08,525
20288,99,1433,90,38212,89,52534,09,382
20299,93,2962,96,23012,89,52624,16,086
20301,097,3071,92,22112,89,52813,18,780
203112,12,21177,31912,89,5301,06,571
20321,06,5718881,07,4590
  • If a salaried class has availed loan for a let-out/ deemed let-out property on 1.4.2016 assuming that he will claim deduction for interest component for FY 2016-17 and subsequent years and also set-off the same with salary income / business income, in that case, he will be able to set-off loss in FY 2016-17.
  • But post amendment proposed in Finance Budget 2017, there will be change in his tax computation from FY 2017-18 onwards since his tax liability would be increased due to restriction of set-off of loss from house property.
  • In most of cases, specifically for salaried class, the loss from house property is generally get set-off in current financial year itself without any limitation on interest deduction for let-out/ deemed let-out property.
  • Post amendment in Finance Budget 2017, following picture will emerge for Computation of Income / (Loss) under house property[1][1] Analysis based on hypothetical figures – assuming all tax conditions such as return filing within time and others are fulfilled and there is no subsequent change in law
  • Following assumptions are made:
    • Municipal taxes are assumed
    • Rent is assumed to be INR 40,000 p.m. * 12 = INR 4,80,000 p.a.
    • It is assumed to be increasing @ 5% every year.

  • Analysis of carry forward and Set-off of loss in income from House Property in various years

Note 1: Loss of FY 2020 and partial loss of FY 2021 is set-off

YearLoss
FY 20203,02,213
FY 202175,079
Total loss set-off in FY 2028      377,292

Note 2: Balance loss of 2021, Full loss of 2022, 2023 and 2024 is set-off

YearLoss
FY 2021165,239
FY 2022173,006
FY 202399,765
FY 202420,026
Total loss set-off in FY 20294,58,036

Conclusion –  Based on specific facts, it is possible that in some cases loss from house property may be expired without set-off in subsequent years.

This amendment may have prolong and deep impact specifically on take home salary of salaried class person since income more than 50% would attract surcharge @ 10% and at the same time, loss of house property is restricted to INR 2,00,000

The impact discussed in above analysis will change with change in rate of interest.

You may Download Finance Bill 2017 From Below link….

Finance Bill 2017, Direct tax Changes in Budget 2017 – Download

Other Budget 2017 Updates

If you have any query or suggestion regarding “Restriction on set-off of loss from House property” then please tell us via below comment box….