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 Finance Act 2020 as an optional tax regime for Individual & HUF. It was thereafter made the default tax regime by Finance Act 2023 and the benefit was extended to persons 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 Sec 2(31)(vii) by replacing Sec 115BAC(1A).

In this discussion I will focus on

(a)   set off of losses of House property from different heads in the current year and

(b)   carry forward and set off in the next year.

The origin:

Following sub-section (1A) shall be substituted for the existing sub-section (1A) of section 115BAC by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025:

(1A) Notwithstanding anything contained in this Act but subject to the provisions of this Chapter, the income-tax payable in respect of the total income of 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 sub-clause (vii) of clause (31) of section 2, other than a person who has exercised an option under sub-section (6),—

 (i)  for any previous year relevant to the assessment year beginning on the 1st day of April, 2024, shall be computed at the rate of tax given in the following Table, namely:—

TABLE

Sl. No.	Total income	Rate of tax
(1)	(2)	(3)
1.	Upto Rs. 3,00,000	Nil
2.	From Rs. 3,00,001 to Rs. 6,00,000	5 per cent
3.	From Rs. 6,00,001 to Rs. 9,00,000	10 per cent
4.	From Rs. 9,00,001 to Rs. 12,00,000	15 per cent
5.	From Rs. 12,00,001 to Rs. 15,00,000	20 per cent
6.	Above Rs. 15,00,000	30 per cent;

(ii)  for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2025, shall be computed at the rate of tax given in the following Table, namely:—

TABLE

Sl. No.	Total income	Rate of tax
(1)	(2)	(3)
1.	Upto Rs. 3,00,000	Nil
2.	From Rs. 3,00,001 to Rs. 7,00,000	5 per cent
3.	From Rs. 7,00,001 to Rs. 10,00,000	10 per cent
4.	From Rs. 10,00,001 to Rs. 12,00,000	15 per cent
5.	From Rs. 12,00,001 to Rs. 15,00,000	20 per cent
6.	Above Rs. 15,00,000	30 per cent.

Note: Thus it is clear from the above the 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 deduction for the following

(i)     without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14)(other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 [in respect of the property referred to in sub-section (2) of section 23] or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;

NOTE: Sec 115BAC(2) states that there is no deduction u/s Sec 24(b) i.e interest on loan for property referred to u/s 23(2) i.e self-occupied or deemed self occupied. Thus there can be no loss in a self occupied or deemed self occupied house property under Sec 115BAC

(2) For the purposes of sub-section (1A), the total income of the person referred to therein, shall be computed—

 (i)  without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14)(other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 [in respect of the property referred to in sub-section (2) of section 23] or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;]

Note: Sec 115BAC(2)(i) states that loss under the head income from house property for rented house shall not be allowed to be set off under any other head while computing total income of the relevant PY

(ii)  without set off of any loss,—

 (a)  carried forward or depreciation from any earlier assessment year, if such loss or depreciation is attributable to any of the deductions referred to in clause (i);

 (b)  under the head "Income from house property" with any other head of income;

Note: Sec115BAC(2)(ii)(b) states that loss from house property head cannot be set off from any other head of income. In this it is stated for the relevant previous year as per Sec 115BAC(2)

(iii)  by claiming the depreciation, if any, under any provision of section 32, except clause (iia) of sub-section (1) of the said section, determined in such manner as may be prescribed; and

(iv) without any exemption or deduction for allowances or perquisite, by whatever name called, provided under any other law for the time being in force.

Note: not relevant for the discussion here

(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: Sec115BAC(3) states that loss from house property head (as this is referred to u/s 115BAC(2)(ii)(b))  cannot be set off from any other head of income even in the subsequent year.

We must also refer to the memorandum to Finance Bill 2020 to understand whether this is an intentional restriction or a drafting oversee. As from a reading of Page 7 & 8 of the memorandum(extract given below) in point(viii) it is mentioned that loss under house property will not be allowed to be set off against any other income from  other head but will be allowed to be carried forward as per extant law.

Extract:

Extracts of Memorandum to Finance Bill 2020

Analysis:

Since the provisions of the Act override the explanation in the memorandum, thus as per law as it stands today the following is the summarised conclusion

1. Interest under section 24 in respect of self-occupied or deemed self occupied. Thus there can be no loss in a self occupied or deemed self occupied house property

2. Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and

3. 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 the subsequent year – this however does seem contradictory to the intention of the finance minister as per  memorandum