Income Tax Bill 2025: How can one carry forward house property losses; check details

Finance Minister Nirmala Sitharaman presented the Income Tax Bill, 2025 in Lok Sabha on February 13 with the aim of simplifying the direct tax law and making it more accessible. This decision follows the government's announcement during the Budget presentation in July last year to revamp the outdated law that has been in place for over six decades. 

While significant personal taxation regulations remain unchanged, some adjustments have been implemented for house property in the new bill. Losses from one house property can now be offset against income from another property. However, any remaining losses can only be set off against income from other sources up to Rs 2 lakh annually. Losses exceeding Rs 2 lakh cannot be offset against other income in the same year.

The unabsorbed loss can be carried forward for up to eight years, during which it can only be set off against income from the house property. It is not allowed to be utilised to offset income from salary, business, or any other sources in the following years.

Rahul Singh, senior manager, Taxmann, told HT: “The remaining loss (unabsorbed loss) can be carried forward for the next eight years, but it can only be adjusted against income from the house property in those years."

Giving an example, Amit earns a salary of Rs 7 lakh. Within the year, he experienced a loss of Rs 3.5 lakh under the category IHP. This loss is eligible for adjustment against Amit's salary income up to Rs 2 lakh.

As a result, Amit's 'Income from Salary' would amount to Rs 5 lakh (Rs 7 lakh - Rs 2 lakh), leaving an excess loss of Rs 1.5 lakh under the head IHP to be carried forward to the subsequent year. However, in the following year, the loss can only be utilised against income falling under the head IHP. If Amit does not have any income in that category, the amount can be carried forward for up to eight years. 

Capital gains exemption

According to the Central Board of Direct Taxes (CBDT), capital gains taxed under sections 111A and 112 will not be eligible for the increased income-tax rebate under section 87A outlined in the Finance Bill 2025.

In a document, Key highlights of Finance Bill 2025, published on CBDT official website, said: "It is proposed that where resident individuals opt for the new tax regime of Section 115BAC, the incomes chargeable to tax at special rates (for example, capital gains taxable under Section 111A, Section 112, etc.) shall be excluded from calculating the Section 87A rebate."

The capital gains exemption is outlined in Clause 54 (New Section 82). It allows individuals to purchase a new house either before one year or after two years of transferring a property without facing capital gains tax. If constructing a new house, this time frame is extended to three years. Both provisions are similar with no significant differences.

If the proceeds from selling property exceed the cost of the new asset, the excess amount is subject to capital gains tax. If attempting to sell the property within three years, the purchase cost is considered nil, leading to a higher capital gain. Conversely, if the capital gains are lower than the cost of the new asset, no capital gains tax is incurred. In the scenario of selling the asset before three years, the cost decreases by the amount of capital gains.