Set-off and Carry Forward of Losses

 1. What is Set-Off of Losses?

Set-off means adjusting a loss from one source of income against profits from another source, to compute the net taxable income.

There are two types of set-off:

a. Intra-head Set-off (Section 70)

Adjusting loss from one source against income from another source under the same head.

 Example:

Profit from Textile Business = ₹5,00,000
Loss from Printing Business = ₹2,00,000
 Net taxable business income = ₹3,00,000 (Intra-head set-off)

b. Inter-head Set-off (Section 71)

After intra-head set-off, remaining loss under one head can be adjusted against another head of income (with some restrictions).

 Example:

  • Business loss = ₹1,50,000
  • Income from House Property = ₹2,00,000
    ✅ Net income = ₹50,000 (Inter-head set-off)

 Restrictions:

  • Business loss cannot be set-off against salary income
  • Under Section 115BAC (new tax regime):
     Loss from house property cannot be set-off against any other head

 2. What is Carry Forward of Losses?

If loss cannot be fully set-off in the same year due to inadequate profits, it can be carried forward to the next years and set-off as per rules.

 Rules for Carry Forward of Losses

Type of Loss

Can be Set-off Against

Carry Forward Period

Conditions

House Property Loss

Income from house property

8 years

Return must be filed in time

Business Loss

Business income only

8 years

Return must be filed in time

Speculative Business Loss

Speculative business income only

4 years

Return must be filed in time

Capital Loss (Short-term)

Any capital gains

8 years

Return must be filed in time

Capital Loss (Long-term)

Only long-term capital gains

8 years

Return must be filed in time

Unabsorbed Depreciation

Any head of income (except salary)

Unlimited

No time limit for set-off

Loss from Owning Race Horses

Same activity income only

4 years

Return must be filed in time

 Important Restrictions

  • Losses can be carried forward only if return is filed on or before the due date under Section 139(1).
  • Brought forward losses are generally not allowed to be set-off against other heads of income.

 Example: Carry Forward Case

Assessee incurs:

  • Business loss in AY 2024–25 = ₹4,00,000
  • No other income to set-off
    ➡️ This ₹4,00,000 can be carried forward for 8 years and adjusted only against business income in future years.

 Summary

Term

Meaning

Intra-head Set-off

Adjusting loss against income under same head

Inter-head Set-off

Adjusting loss under one head with another

Carry Forward

Shifting unadjusted loss to future years

Restrictions

No set-off of business loss against salary, etc.

 

 

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