Set off And Carry Forward of Income Tax Losses
Set off of losses
Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years.
| Intra-head Set Off | Inter-head Set Off |
| The losses from one source of income can be set off against income from another source under the same head of income. For eg: Loss from Business A can be set off against profit from Business B, where Business A is one source and Business B is another source and the common head of income is “Business”. | After the intra-head adjustments, the taxpayers can set off remaining losses against income from other heads. Eg. Loss from house property can be set off against salary income. |
Carry forward of losses
After making the appropriate and permissible intra-head and inter-head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rules as regards carry forward differ slightly for different heads of income.
| Loss under Head | Carry Forward Period | Can be Adjusted Against |
| Losses from House Property | Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred. | Can be adjusted against Income under any head. |
| Losses from Non-speculative Business loss | Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred | Can be adjusted against any head of Income except Income from Salaries. |
| Speculative Business Loss | Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred | Can be adjusted only against Income from speculative business |
| Specified Business Loss under 35AD | No time limit to carry forward the losses from the specified business under 35AD | Can be adjusted only against Income from specified business under 35AD |
| Capital Losses | Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred | Long-term capital losses can be adjusted only against long-term capital gains. Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains |
| Losses from owning and maintaining race-horses | Can be carry forward up to next 4 assessment years from the assessment year in which the loss was incurred | Can only be set off against income from owning and maintaining race-horses only |
Note : Any loss other than loss from house property cannot be carry forward if the return is not filed within the original due date.
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