Income Tax Bill 2025 | Key Clarifications on House Property Losses & Capital Gains

The New Income Tax Bill 2025, which aims to replace the Income Tax Act 1961, introduces revised tax rules to simplify financial adjustments for taxpayers.

Carry Forward Of Losses From House Property

If you have a loss from one house property, you can adjust it against income from another house property. If there’s still a loss after this, you can set it off against income from other sources, but only up to ₹2 lakh per year. Any loss beyond ₹2 lakh cannot be adjusted against other income in the same year.

“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. It cannot be used to reduce income from salary, business, or other sources in subsequent years,” says Rahul Singh, senior manager at Taxmann.

For example, Amit has a salary of ₹7 lakhs and incurs a loss of ₹3.5 lakhs under the head IHP. This loss can be adjusted against his salary income up to ₹2 lakhs.

Therefore, Amit’s ‘Income from Salary’ will be ₹5 lakhs ( ₹7 lakh – ₹2 lakh), and the excess ₹1.5 lakh loss under the head IHP can be carried forward to the next year. However, in the following year, this loss can only be set off against income under the head IHP. If Amit has no such income, this amount can be carried forward for the next eight years.

“However, it appears that there is a drafting error, as provisions of sub-clause (3) of Clause 110 inadvertently reference Section 107 instead of 109. This anomaly needs to be rectified before the bill becomes an act,” says Rohit Garg, Partner at Shardul Amarchand Mangaldas & Co.

Capital Gains Exemption On Property Sale

“Capital gains exemption is provided under Clause 54 (New Section 82) when the assessee, before one year or after two years of the date of transfer, purchases a new house. If the property is constructed instead of purchased, the time limit extends to three years,” explains Garg

There are no substantial changes in this provision compared to the previous act. If capital gains exceed the cost of the new asset, the excess amount will be subject to capital gains tax.

However, if the assessee sells the newly acquired property before three years, the purchase cost will be considered nil, significantly increasing the capital gain. “Similarly, if the capital gains are less than the cost of the new asset, no capital gains will be charged. If the asset is sold before three years, the cost will be reduced by the amount of capital gains,” says Garg.

For example, Rahul sells his residential house, earning a capital gain of ₹50 lakhs. He purchases a new house for ₹1 crore within two years. Since the cost of the new house exceeds the capital gains, no capital gains tax is applicable.

However, if Rahul sells his new property for ₹1.3 crore before three years, the cost of the new house, i.e., ₹1 crore, will be reduced by the previously exempt capital gains of ₹50 lakhs.

Thus, the cost of acquisition for the new house will be ₹50 lakhs ( ₹1 crore - ₹50 lakhs), leading to effective capital gains of ₹80 lakhs ( ₹1.3 crore - ₹50 lakhs). If he waits until the three-year period lapses, the capital gains would be ₹30 lakhs ( ₹1.3 crore - ₹1 crore).