Home > Help Center > Set Off Rules Last Updated: Apr 08th 2021

How to Carry Forward Capital Losses, Set Off Rules

No one trade for losses but when they happen one should know the rules to set off the capital losses against the income that you received and / or provisions to carry forward such losses to future years for it's intended benefit.

Carry Forward Losses & Set-off Rules

1. Background

There are specific provisions in Income-tax Act, 1961 for the set off and carry forward of losses. It is common for a taxpayer to suffer losses et times, and the Income Tax Department permits the taxpayer to adjust those losses against his income with some set of rules. Know more on the applicability, adjustments, Rules, tenure to carry such losses, what income can be set-off agains what income head etc.

2. What does the term "Set-Off" means for the taxpayer?

“Set-off” means adjustments of losses against the profit from another source/head of income in the same assessment year(financial year).

3. What does the term "Carry forwarded Losses" means for the taxpayer?

If losses cannot be set-off in the same year due to inadequacy of edible profit, then such losses are carry forward to next assessment year for adjustment against the eligible profit of that year.

The maximum period for which different losses can be carried forward for set-off has been provided in the Act,1961.

4. What are the Heads of Income?

There are 5 heads of income as defined by Income Tax Act,1961

  1. Income from Salaries
  2. Income from House Property
  3. Income from Business/Profession
  4. Income from Capital Gains (Short Term and Long Term)
  5. Income from Other Sources

5. What are the types of adjustments under Set-Off of Losses?

Broadly, there are 2 types of adjustments under Set-Off of Losses


5.1. Intra Head Set-off of Losses

The losses incurred by the taxpayer in one source of income shall be set off against income from any other source under the same head of income.

  EXAMPLE :
Mr Ram has 2 house properties i.e., one in Hyderabad and one in Bangalore. He has paying home loan interest of Rs 150000 in respect of Bangalore property, and it is self-occupied. He is getting rental income of Rs 300000 per year from Hyderabad property. He can set off rental income from Hyderabad property from the Loss (Interest Paid) arrived in Bangalore property.

Exceptions for Intra Head set-off of losses: Intra Head set off is not possible in the following cases.

  1. Long Term Capital losses cannot be set off against short term capital gain (even though it is same head). Long term capital losses can be set off against only long-term gain.
  2. Speculation/Specified business Losses cannot be set off against profits/gains from any other business/profession. Speculation/specified business losses can be set off against only Speculation/specified business gains.
    Note : Any losses from other business/profession can be adjusted againstprofits from speculation business/specified business.
  3. Losses from race horses cannot be set off against any other sources (even horse races comes under other sources). Losses from horse races can be set off against only profits from race horses.


5.2. Inter Head Adjustments

The losses incurred by the taxpayer under one head of income can be adjusted against any other head of Income.

  EXAMPLE:
Mr Krishna is a salaried employee, and he has house property. He is paying home loan interest for the house property which is a loss. Mr Krishna can set off house property loss against his salary income.

Exceptions for Inter Head Adjustments: Inter Head adjustments is not possible in the following cases.

  1. Losses from Capital Gains (Short Term and Long Term) cannot be set off against any other heads of income i.e., Salary, House property, Business/Profession or Other sources
  2. Losses from Business/Profession (Normal Business/Speculation business/Specified business) cannot be set off against the head Salaries.
  3. Losses from House Property can be set off against any other heads of income but the limit of set off is only Rs 2 Lakhs. The loss more than Rs 2 lakhs cannot be set off against any other heads of income.
  4. Speculation losses/Specified business losses/loss from race horses cannot be set off against any other heads of income


6. Loss Set-Off Posibilities


Income Categories
Loss from SalaryHouse PropertyNon-Speculative BusinessSpecified BusinessSpeculative BusinessLTCGSTCGOwning & Maintenance of Race HorsesOthers
House Property LossYesYesYesYesYesYesYesYesYes
Business/Profession Loss (Non-Speculative)NoYesYesYesYesYesYesYesYes
Speculative business lossNoNoNoNoYesNoNoNoNo
Specified Business loss u/s 35ADNoNoNoYesNoNoNoNoNo
Long Term Capital LossNoNoNoNoNoYesNoNoNo
Short Term Capital LossNoNoNoNoNoYesYesNoNo
Loss from Owing and MaintenanceNoNoNoNoNoNoNoYesNo

7. Carry forward and Set-off of brought forward losses

The Taxpayer has a right to carry forward the losses if the losses cannot be set off either under same head or different heads due to insufficient income in the same year. The taxpayer can carry forward the losses and adjust those losses in next year with some restrictions.

However, the loss so carried forward can be set-off only against same head of income, i.e. the benefit of "Intra-Head" adjustment is lost.


SectionNature of loss to be Carried ForwardIncome against which the Brought Forward loss can be set off in subsequent years.Maximum Permissible Period [from the end of the relevant assessment year] for carry forward of losses
71BUnabsorbed loss from house propertyIncome from House Property8 assessment years
72Unabsorbed businessloss (non- speculative)Profit and gains frombusiness or profession(non- speculative)8 assessment years
73Loss from speculationbusinessIncome from speculation business4 assessment years
73ALoss from specified business under section 35ADProfit from specified business under section 35ADIndefinite period
74Long-term capital lossLong-term capital gains8 assessment years
74Short-term capital lossShort/Long-term capital gains8 assessment years
74ALoss from the activity of owning and maintaining race horsesIncome from the activity of owing and maintaining race horses.4 assessment years

8. Submission of Income Tax Return to Set-Off / Carry Forward of Losses

The taxpayer needs to file his income tax return to carry forward the losses and set off in subsequent years. Non-Filing of Income tax return makes the taxpayer ineligible to carry forward the losses. The following losses cannot be carried forward without filing returns.

  1. Losses from Business/Profession
  2. Losses from Capital Gains
  3. Losses from Specified business
  4. Losses from Speculation Business
  5. Losses from Maintaining race horses.

Exception: House Property losses can be carried forward even without filing income tax returns

Our Tax Services

Online Income Tax Filing Time: ~7 mins
  • Comprehensive & Accurate > No limits.
  • Highly Secure > Peace of mind.
  • Maximum Deductions > Save on Taxes.
  • No more visits to Tax Consultants > Save Time & Money.
  • Real-time Tax Calculation
  • Available in both Web Browser & Mobile App

Start Now

GST Accounting Software Price: FREE for 1st year in India  refer pricing for other countries such as India, Australia, Malaysia, Nepal, Pakistan, Singapore, Sri Lanka, & UK

Easiest GST ready Accounting software

  • GST Compliant Invoicing
  • Online - Highly available
  • Quick Onboarding - Import your data from legacy
  • Personalization - Highly customized Invoicing
  • Drafts > Estimates > POs > Delivery Challans > Invoices > CR/DR Notes > RCs & All.
  • Barcode scanner Integration
  • Amazon, Flipkart Imports
  • Individual, or Bulk Payments - just a Click away
  • Multiple users can Book / Bill at the same time
  • Quick Invoicing, Auto Delivery, & Reminders
  • Multi-Channel GST returns preparation
  • Customized for Regular and Composition
  • AI Data Insights
  • AI Prioritization
  • AI Alerts
  • Expenses & Purchases
  • Real Time P & L
  • Barcode Scanner, e-Way Bill Integration
  • Excellent User Experience
  • Easy to understand language
  • Artificial Intelligence enablement
  • above all, Count on our Outstanding Client Service

Start NowLearn more
Tax Expert Services Price: Rs.599 onwards

GST
  • Affordable Tax Services for Businesses, Associations, Individuals
  • GST Registration
  • GST Return Filing
  • GST Accounting
  • GST Consultation
  • Notice Handling
Income Tax
  • Income Tax Return Filing for Businesses, Associations, Individuals
  • Tax Savings
  • TDS Preparation
  • General Tax Compliance
  • Investment Advisory
  • Capital Gains Consultation
  • Tax Planning
  • Notice Handling
Virtual Accounting
  • Complete Accounting for Businesses, Associations, Individuals
  • Compliance & Accounting Portal Access for easy monitoring
  • Accounting Advisory
  • Tax Savings
  • GST, Income Tax, TDS, General Tax Compliance
  • Business Planning

Contact Now   WhatsApp Now

How to get help from EZTax.in