Key Changes in Exemption of House Property Losses and Capital Gains
The Income Tax Bill 2025 was introduced, replacing the old Income Tax Act of 1961. This bill has made key changes in exemption of House Property Losses and Capital Gains.
The Income Tax Bill 2025 was introduced, replacing the existing Income Tax Act of 1961. The aim of this bill is to make tax rules more simple. We can learn how to handle losses from house property and tax benefits when selling a property by this bill.
In the new bill, if a loss is incurred due to one house property, it can be carried forward and offset against income from another house property. If after this offset a loss still persists, it can be offset against other incomes, but only up to Rs.2 lakh annually. Any excess above Rs.2 lakh cannot be offset against other incomes in the same year.
The balance loss, also referred to as an unabsorbed loss, can be brought forward for a period of eight years. But in later years, it can only be utilized against house property income and not against salary, business, or other sources of income.
For instance, if a person earns a salary of Rs.7 lakh and suffers a house property loss of Rs.3.5 lakh in a year, then only Rs.2 lakh of the loss can be offset against the salary. This lowers the taxable salary income to Rs.5 lakh (Rs.7 lakh – Rs.2 lakh). The balance loss of Rs.1.5 lakh may be brought forward to the future financial year but can be only set off against future income arising from house property. If any such income is not available, the loss will be carried forward for eight years. But there is a drafting problem in the bill. The section in sub-clause (3) of Clause 110 incorrectly cites Section 107 when it should say Section 109. This has to be corrected before the bill is passed into law.
The bill also has some provisions regarding capital gains exemption while selling a property, which come under Clause 54 (New Section 82). In case a new house is bought within one year of selling an existing property or two years later from the sale date of an existing property, or if a new house is built within three years, the capital gains of selling the existing property will be tax-free.
There are no significant changes from the earlier provisions. If the capital gains are more than the cost of the new property, the difference will be charged to tax. But if the capital gains are less than the cost of the new property, there will be no tax. If the new property is sold before the fall of three years, the acquisition cost for taxation purposes will be modified.
For example, if a person sells residential property with a capital gain of Rs. 50 lakh and purchases a new house costing Rs. 1 crore within two years, the whole capital gain is exempt. But if the new house is sold within three years for Rs. 1.3 crore, the cost of acquisition will be adjusted downwards by the exempted capital gain of Rs. 50 lakh. This question means the taxable capital gains will be Rs. 80 lakh (Rs.1.3 crore minus Rs.50 lakh). If he sells after three years, the taxable capital gains will be just Rs. 30 lakh (Rs. 1.3 crore – Rs. 1 crore). These provisions are made to bring clarity to house property losses and taxation of capital gains. Corrections in the bill drafting are, however, important to prevent ambiguity before the bill is enacted into law.