No HP loss c/fd u/s 115BAC — a drafting error?

Is loss from house property allowed to be set off from other heads under Sec 115BAC?

Sec 115BAC was introduced by the Finance Act 2020 as an optional tax regime for Individual & HUF. It was thereafter made the default tax regime by the Finance Act 2023, and the benefit was extended to a person being an individual or Hindu undivided family or association of persons (other than a co-operative society), or body of individuals, whether incorporated or not, or an artificial juridical person referred to in Sec 2(31)(vii) by substituting Sec 115BAC(1A).

In this discussion the focus is on:

• set off of losses of House property from different heads in the current year
• carry forward and set off in the next year

The origin

The rate tables under Sec 115BAC(1A) (as substituted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025):

AY 2024-25

• Up to ₹3,00,000 — Nil
• ₹3,00,001 to ₹6,00,000 — 5%
• ₹6,00,001 to ₹9,00,000 — 10%
• ₹9,00,001 to ₹12,00,000 — 15%
• ₹12,00,001 to ₹15,00,000 — 20%
• Above ₹15,00,000 — 30%

AY 2025-26 onwards

• Up to ₹3,00,000 — Nil
• ₹3,00,001 to ₹7,00,000 — 5%
• ₹7,00,001 to ₹10,00,000 — 10%
• ₹10,00,001 to ₹12,00,000 — 15%
• ₹12,00,001 to ₹15,00,000 — 20%
• Above ₹15,00,000 — 30%

Note: Sec 115BAC overrides all other provisions of the Act.

Sec 115BAC(2)

For the purposes of sub-section (1A), the total income shall be computed without the deductions/exemptions listed in clause (i) — including clause (b) of section 24 in respect of the property referred to in sub-section (2) of section 23 (self-occupied / deemed self-occupied).

Note: Since there is no deduction u/s 24(b) for a self-occupied or deemed self-occupied house, there can be no loss in such a house property under Sec 115BAC.

(ii) without set off of any loss —

• (a) carried forward or depreciation from any earlier assessment year, if attributable to any of the deductions in clause (i);
• (b) under the head “Income from house property” with any other head of income.

Note: Sec 115BAC(2)(ii)(b) states that loss from the house-property head cannot be set off against any other head of income for the relevant previous year.

Sec 115BAC(3)

The loss and depreciation referred to in clause (ii) of sub-section (2) shall be deemed to have been given full effect to and no further deduction for such loss or depreciation shall be allowed for any subsequent year.

Note: Sec 115BAC(3) means the house-property loss cannot be set off even in a subsequent year.

The memorandum to the Finance Bill 2020 (point viii) indicates that loss under house property will not be allowed to be set off against other heads but will be allowed to be carried forward as per extant law. Since the provisions of the Act override the memorandum, the current legal position is as below.

Analysis

• Interest under section 24 in respect of a self-occupied or deemed self-occupied property cannot result in a loss.
• Loss under the head “Income from house property” for a rented house shall not be allowed to be set off under any other head.
• The loss will also not be allowed to be carried forward to the next year, and thus cannot be set off intra-head or inter-head in a subsequent year — which appears contradictory to the intention stated in the memorandum.