House Property Loss Set-Off and Carry Forward (Rs 2 Lakh Cap) under the Income Tax Act 2025

If the loss you compute under the head "Income from house property" is large, the Income-tax Act, 2025 lets you set off at most Rs 2,00,000 of it against income under any other head, such as salary or business, in the same tax year (section 109(1)(b)). Whatever remains is carried forward to the next tax year and can be set off only against income from house property, for up to eight tax years after the year the loss first arose (section 110).

This guide covers who this affects, the order in which a loss is adjusted, and three worked examples for tax year 2026-27 and later. Every limit below comes from the Act as amended by the Finance Act, 2026. It explains how the loss is adjusted, not how the loss itself is computed. Last reviewed against the Act text on 10 November 2026.

What is the Rs 2 lakh limit on house property loss?

Section 109(1)(b) says a loss under the head "Income from house property" shall be set off to the extent of Rs. 200000 against income under any other head. The limit is per tax year and applies to the loss that is left after you have netted all your house properties against each other (see the next section).

Two consequences follow from the wording:

• If your house property loss is Rs 1,20,000, the whole of it can be set off, because it is below the limit.
• If your income under other heads is smaller than the loss, the set-off cannot exceed that income. The part that cannot be set off goes to the carry forward under section 110(1).

In what order is a house property loss adjusted?

Step 1 comes from section 108(1): where the net result from one source under a head is a loss, you set it off against your income from any other source under the same head for that year. So a loss on one house property is first absorbed by rent or notional income from another. Section 108(1) opens with "unless provided otherwise in this Act".

How long can a house property loss be carried forward?

Section 110(2): no loss is carried forward for more than eight tax years immediately succeeding the tax year in which it was first computed. A loss first computed for tax year 2026-27 can therefore be set off up to tax year 2034-35.

Loss first computed in	First year it can be carried to	Last (8th) year it can be set off
2026-27	2027-28	2034-35
2027-28	2028-29	2035-36

The count starts from the year the loss arose, not from the year the carry forward began. Carrying forward a balance does not reset the eight years.

Which losses can be set off against which heads?

Loss under head	Against other heads of the same year?	Carry forward
House property	Yes, up to Rs 2,00,000 (s. 109(1)(b))	Against house property income only, 8 tax years (s. 110)
Business or profession	Yes, but not against salary (s. 109(1)(a))	Separate rules; see section 112
Capital gains	No (s. 109(2))	Separate rules; see section 111

This article is only about the first row. A separate set of rules (section 114) applies to a loss from a specified business.

Worked example 1: loss larger than Rs 2 lakh (tax year 2026-27)

Assumptions: Ravi has income under the head Salaries of Rs 12,00,000 (already computed). He has one house property that shows a loss of Rs 3,50,000 under the head "Income from house property". He has no other income and no other house property.

Step	Amount (Rs)
Loss under house property	3,50,000
Maximum set-off against other heads (section 109(1)(b))	2,00,000
Set off against salary	2,00,000
Salary income after set-off (12,00,000 - 2,00,000)	10,00,000
Loss carried forward to 2027-28 (3,50,000 - 2,00,000)	1,50,000

The Rs 1,50,000 carried forward can be used only against house property income, through to tax year 2034-35.

Worked example 2: two properties, loss smaller than the cap (tax year 2026-27)

Assumptions: Meena owns two properties. Property A gives her house property income of Rs 90,000. Property B shows a loss of Rs 2,10,000. She also has business income of Rs 5,00,000 (already computed, no business loss).

Step	Amount (Rs)
Property A income	90,000
Property B loss	(2,10,000)
Net under the head after section 108(1) (90,000 - 2,10,000)	(1,20,000) loss
Limit under section 109(1)(b)	2,00,000
Set off against business income (1,20,000 is below the limit)	1,20,000
Business income after set-off (5,00,000 - 1,20,000)	3,80,000
Carried forward	Nil

Worked example 3: using the carried forward loss in the next year

Assumptions: Continuing Ravi's case. In tax year 2027-28 his let-out flat gives house property income of Rs 40,000 (already computed). His salary is Rs 13,00,000. He brought forward Rs 1,50,000 from 2026-27.

Step	Amount (Rs)
House property income for 2027-28	40,000
Brought forward loss	1,50,000
Set off against house property income only (section 110(1)(a))	40,000
House property income after set-off	Nil
Balance carried to 2028-29 (1,50,000 - 40,000)	1,10,000
Salary income	13,00,000, unchanged

The balance of Rs 1,10,000 stays within the eight-year window that ends with tax year 2034-35.

Can a house property loss be set off under the new tax regime?

Under the default regime of section 202 (the Rs 4,00,000 slab table), the total income is computed without set off of any loss under the head "Income from house property" with any other head of income (section 202(2)(b)(ii)). So if you stay in that regime, the Rs 2,00,000 set-off against salary or other heads is not available to you.

Section 202(1) applies "unless the person exercises the option" under section 202(4). If you opt out, section 109 and the Rs 2,00,000 limit apply as described above. Under section 202(3), a loss that was not given effect to in the regime is deemed to have been given full effect, so no further deduction for it is allowed in a later year. Check the detailed wording of section 202(2) to (4) before choosing a regime for a client with a large property loss.

Is the set-off allowed against capital gains and salary?

Yes. Section 109(1) allows a loss from any head other than "Capital gains" to be set off against income under any other head, including "Capital gains", subject to the two conditions in clauses (a) and (b). For house property this means salary, business income, capital gains and other sources are all open to the Rs 2,00,000 set-off. The reverse does not work: a capital gains loss cannot be set off against any other head (section 109(2)).

Are losses brought forward from before 1 April 2026 still allowed?

Yes. Section 536 (repeal and savings), clause (m), says a house property loss brought forward for a tax year beginning before 1 April 2026 is set off and carried forward against income computed under the 2025 Act in the manner of the corresponding section of the repealed Act (the table names section 71B of the Income-tax Act, 1961). Keep the original year of the loss, because the eight-year limit is counted under that earlier law.

Does my employer consider the loss while deducting TDS on salary?

It can. Under section 392(4)(a)(iii), the person paying salary takes into account any house property loss for the same tax year, if you furnish the particulars in the prescribed form, and under section 392(4)(b) the TDS on salary can be reduced on account of that loss. Employers may ask for proof of the claim (section 392(5)).

Real-life scenarios

Scenario 1: income too small to absorb the loss. Sunita runs a small shop with business income of Rs 1,40,000 in a year and has a house property loss of Rs 2,60,000. The set-off against business income is limited to the income available, Rs 1,40,000, which is also below the Rs 2,00,000 limit. The remaining Rs 1,20,000 is carried forward under section 110(1).

Scenario 2: a loss reaches its eighth year. Arjun's loss first arose in tax year 2026-27 and he had no house property income for years. If a balance is still unused after tax year 2034-35, section 110(2) says it cannot be carried forward further, so it lapses.

What are the common mistakes?

• Setting off the full loss against salary. The cap is Rs 2,00,000 per tax year for the loss under the head.
• Skipping the same-head netting. With more than one property, net them first (section 108(1)); the cap applies to what is left.
• Using a brought forward loss against salary or business income. Section 110(1)(a) allows it only against house property income.
• Restarting the eight-year count. The window runs from the year the loss was first computed, not from each carry forward.
• Treating other heads alike. Capital gains losses cannot be set off against other heads at all (section 109(2)), and business losses cannot be set off against salary (section 109(1)(a)).

Quick reference

Item	Rule	Where
Set-off against other heads, same year	Up to Rs 2,00,000	Section 109(1)(b)
Carry forward	To the following tax year, and so on	Section 110(1)
Carried forward loss set off against	House property income only	Section 110(1)(a)
Maximum period	8 tax years after the year the loss first arose	Section 110(2)

How do CA firms track carried forward losses across clients?

A loss that runs for eight years is easy to lose track of, especially when the client changes advisers. Finexo's practice management software can hold a note and a reminder against each client so the brought forward balance and its last usable year are visible when you prepare the next return. It does not compute the loss or file the return for you.

Where is this in the Act?

• Section 108(1): set off of losses under the same head of income.
• Section 109(1)(b): Rs 2,00,000 limit for house property loss against other heads; section 109(2): no set-off of capital gains loss against other heads.
• Section 110(1) and (2): carry forward and set off of house property loss, eight tax year limit.
• Section 202(2)(b)(ii): no set off of house property loss against other heads under the default regime. Section 536(m): losses brought forward from before 1 April 2026. Section 392(4): loss considered for TDS on salary.
• For which income is taxed in the first place, see scope of total income under the Income Tax Act 2025.

This article explains the Income-tax Act, 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.