Learning article
Set‑Off and Carry Forward of Losses — Complete Guide
How to use losses from one source to reduce tax on another income and carry forward unabsorbed losses to future years — rules for each head of income.
Quick takeaways
Losses can be set off against other income in the same year (intra‑head and inter‑head), with restrictions.
Capital losses have strict rules — short‑term losses can be set off against both short‑term and long‑term gains, but long‑term losses only against long‑term gains.
Unabsorbed losses can be carried forward up to 8 years (except house property loss, which is limited to 8 years as well, and speculative loss 4 years).
Overview
What is set‑off of losses?
Intra‑head set‑off: loss from one source under the same head of income (e.g., loss from one business against profit from another business).
Inter‑head set‑off: after intra‑head, remaining loss can be set off against income under other heads, except capital losses (can't be set off against salary).
Important facts
Loss from house property
Can be set off against any other income (salary, business, etc.) up to ₹2 lakh per year.
Unabsorbed loss can be carried forward for 8 years and set off only against house property income.
Key concepts
Capital losses
Short‑term capital loss: can be set off against both STCG and LTCG.
Long‑term capital loss: can only be set off against LTCG.
Cannot set off capital loss against salary or business income.
Unabsorbed capital loss can be carried forward up to 8 years, provided ITR is filed on time.
Important facts
Business losses
Non‑speculative business loss: can be set off against any income except salary (some restrictions for speculative vs non‑speculative).
Speculative loss: can only be set off against speculative profit.
Unabsorbed business loss (non‑speculative) can be carried forward 8 years, speculative loss 4 years.
Key takeaways
Compliance & strategy
File ITR before the due date to be eligible to carry forward losses.
Maintain records of each year’s loss and set‑off until fully absorbed.
Tax‑loss harvesting near financial year end can reduce capital gains tax significantly.
FAQs
Common questions
Keep reading
Related articles
Capital Gains Tax Basics for Investors
A beginner’s look at how shares, mutual funds, and property are taxed under capital gains — holding periods, tax rates, and set‑off rules.
Explore articleHow Income Tax is Calculated
A step-by-step view of how income becomes taxable income and how the final tax amount is reached.
Explore articleHow to File ITR‑2 — For Capital Gains & Multiple Income Sources
A walkthrough for individuals and HUFs having capital gains, house property income, or foreign assets — what to prepare before filing ITR‑2.
Explore article