Income tax · Business and professionals
How are losses set off and carried forward under income tax?
Short answer
A loss is first set off within the same head, then against other heads, with exceptions: capital losses only against capital gains, and house property loss only up to ₹2 lakh a year against other income. Unabsorbed business losses carry forward for 8 years, speculation losses for 4, and capital losses for 8. Unabsorbed depreciation carries forward without limit. To carry forward most losses, file your return by the due date.
Step 1: set off in the same year
Within the same head (section 70, now 108). For example, a loss from one business against profit from another. Exceptions:
- a long-term capital loss can be set off only against long-term capital gains;
- a speculation loss only against speculation income;
- a loss from owning and maintaining race horses only against such income.
Against other heads (section 71, now 109), with limits:
- a business loss cannot be set off against salary;
- a capital loss cannot be set off against any other head;
- a house property loss can be set off against other heads only up to ₹2 lakh a year.
Step 2: carry forward what is left
| Loss | Carried forward for | Set off later only against |
|---|---|---|
| House property | 8 years | House property income |
| Business (non-speculative) | 8 years | Business income |
| Speculation business | 4 years | Speculation income |
| Short-term capital loss | 8 years | Any capital gain |
| Long-term capital loss | 8 years | Long-term capital gain |
| Race horses | 4 years | Race-horse income |
| Unabsorbed depreciation | No limit | Any income other than salary |
The return must be on time
Business, speculation and capital losses can be carried forward only if the return is filed by the due date (section 80, now 121). A belated return keeps only the house property loss and unabsorbed depreciation. Make sure the loss is shown in the schedule of losses (Schedule CFL).
New regime restrictions
Under the new regime (section 115BAC, now 202), a loss from a let-out house property cannot be set off against other heads, and no loss can be carried forward from a deduction that the regime does not allow.
Companies with a change in ownership
A closely held company loses its carried-forward business losses if more than 49% of its voting power changes hands (section 79, now 119). Eligible start-ups get relief from this rule.
Legal basis
- Sections 70 to 80, Income-tax Act, 1961, now sections 108 to 121, Income-tax Act, 2025
- Section 115BAC (new regime restrictions), now section 202
Official sources
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