How to adjust Loss from House Property in Form 16?

Question: While deducting income tax from the salary of an employee, Employer is required to adjustment losses on House property only. My query is related to adjustment of house property losses in Salary income and maximum amount of house property losses to be considered, if any.

Query 1:- For House property losses, is employer require to take maximum loss as Rs 1.5 Lacs, being the maximum expense claim allowed on account of Interest paid on borrowed capital,   (in case employee has let out the property and computation of loss is showing loss of more than Rs 1.5 Lacs).

Query 2:- Whether employer is require to adjust loss for only one house property (being the self occupied one) or losses on more than one house property could be considered ( One Self occupied and one let out or both properties let out)

Please further suggest, what are the relevant documents required to be taken from employee as a house property loss computation along with Interest Certificate from Bank, Computation of House property loss, particulars of other income by employee in Form 12C/ simple statement.

Reply: It is pertinent to note that Section 192(2B) which permits Loss under House Property to be set off against Salary Income, for the purpose of determining the TDS on Salaries, does not distinguish between Loss under Self occupied House and Loss under Let out House. The implication is that, if it is Loss under self occupied property the Loss should be restricted to Rs.1,50,000/-and if it is Loss under let out House there is no such restriction. CBDT Circular No: 1/2010 dated 11-01-2010 explains the procedure in this regard in paragraphs 3.6 and 3.7. The relevant portion of the Circular is reproduced below:

3.6 (i) Sub-section (2B) of section 192 enables a taxpayer to furnish particulars of income under any head other than “Salaries” and of any tax deducted at source thereon. Form no. 12C, (which was earlier prescribed for furnishing such particulars), has since been omitted from the Income Tax Rules. However, the particulars may now be furnished in a simple statement, which is properly verified by the taxpayer in the same manner as was required to be done in Form 12C.

(ii) Such income should not be a loss under any such head other than the loss under the head “Income from House Property” for the same financial year. The person responsible for making payment (DDO) shall take such other income and tax, if any, deducted at source from such income, and the loss, if any, under the head “Income from House Property” into account for the purpose of computing tax deductible under section 192 of the Income-tax Act. However, this sub-section shall not in any case have the effect of reducing the tax deductible (except where the loss under the head “Income from House Property” has been taken into account) from income under the head “Salaries” below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account’. In other words, the DDO can take into account any loss (negative income) only under the head income from House Property and no other head for working out the amount of total tax to be deducted. While taking into account the loss from House Property, the DDO shall ensure that the assessee files the declaration referred to above and encloses therewith a computation of such loss from House Property.

Thus it appears to me from the foregoing that any loss under house property should be taken into account for the purpose of computing the TDS on Salaries, whether it is Loss under Self occupied House or a let out House. But paragraph 3.7 of the circular further elaborates the procedure for Self occupied property alone without mentioning anything about the Loss under let out House.

Conditions for Claim of Deduction of Interest on Borrowed Capital for Computation of Income From House Property

3.7(i) For the purpose of computing income / loss under the head `Income from House Property’ in respect of a self-occupied residential house, a normal deduction of Rs.30,000/- is allowable in respect of interest on borrowed capital. However, a deduction on account of interest up to a maximum limit of Rs.1,50,000/- is available if such loan has been taken on or after 1.4.1999 for constructing or acquiring the residential house and the construction or acquisition of the residential unit out of such loan has been completed within three years from the end of the financial year in which capital was borrowed. Such higher deduction is not allowable in respect of interest on capital borrowed for the purposes of repairs or renovation of an existing residential house. To claim the higher deduction in respect of interest up to Rs.1,50,000/-the employee should furnish a certificate from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by such employee for the purpose of construction or acquisition of the residential house or for conversion of a part or whole of the capital borrowed, which remains to be repaid as a new loan.

Does it mean that DDOs shall take into account only the Loss under Self occupied property for the purpose of determining the TDS on Salaries? I do not think so as neither Section 191(2B) nor paragraph 3.6 place any such restriction. Therefore the answer to these Queries are:

1. As section 192(2B)does not make any distinction between Self Occupied House and Let out house, if the property is Self occupied the Loss should be restricted to Rs.1,50,000/- and in case of let out House there is no restriction.

2. As per Section 192(2B) there is no restriction that the Loss should be restricted to one House only. It has been held in many cases that the Statutory Provisions will prevail over a Circular in case of contradiction between the two. The most recent case is Income tax Officer (OSD) Vs Data Software Research Company (International) Pvt Ltd (319 ITR 40 (AT) Chennai Tribunal relying on the Supreme Court decision in CCE Vs Ratan Melting and Wire Industries (220 CTR 98).

Further No Form Has been prescribed on which other income is to be submitted , earlier Form 12C was applicable but now it has been abolished .Rule 26B describe how this information is to be submitted ,Rule is reproduced hereunder.So statement should be given on plain paper and should be verified as suggested by Rule 26B.

Statement of particulars of income under heads of income other than “Salaries” for deduction of tax at source.83

“26B. (1) The assessee may send to the person responsible for making payment under sub-section (1) of section 192, a statement of any income chargeable under any head of income other than “Salaries” (not being a loss under any such head other than the loss under the head “Income from house property”), received by the assessee for the same financial year, and of any tax deducted on such income.

(2) A verification in the following form shall be annexed to the statement referred to in sub-rule (1),—

FORM OF VERIFICATION

I, …………………..(name of the assessee), do declare that what is stated above is true to the best of my information and belief.”

The House property Loss adjustment By DDO was started by Finance Act (2)1998,Clause 49 which also suggest that the above relief (adj of loss) is given for let out property also Clause 49 seeks to amend section 192 of the Income-tax Act relating to deduction of tax at source from salary.

The existing provisions contained in sub-section (2B) of section 192 enables an assessee, having income under the head “salaries”,in addition to income under any other head, not being a loss under any such other head, to furnish in the prescribed manner the details of the total income to the person responsible for making the payment who shall deduct out of salary payment the tax due on total income, subject to the conditions prescribed in that sub-section. Proviso to the said sub-section (2B) provides that taking into account of such other income will not have the effect of reducing the tax deductible from the income under the head “salaries” below the amount that would be so deductible if the other income and the tax deducted thereon had not been taken into account.

It is proposed to substitute the said sub-section (2B) so as to provide that an assessee having an income under the head “salaries” may furnish in the prescribed manner giving the details of the losses under the head “income from house property” to the person responsible for making the payment who shall take into account such loss for the purpose of computing the tax deductible from salaries, which may be reduced in such a case. This amendment will take effect from 1st August, 1998 and will, accordingly, apply in relation to the assessment year 1999-2000 and subsequent years.

  • Yogesh

    Very informative and covers the most important aspect of showing interest on borrowed capital in Form 16. Thanks Mr. Jain for that.

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