Loss Set-off & Carry-Forward Rules

⚡ In shortA loss in one year need not be wasted — the Income-tax Act lets most losses be set off against other income now, or carried forward against future income — but each type of loss has its own window and its own rules about what it can offset. House-property loss can be set off against any head in the same year, but only up to ₹2,00,000, and the balance carries forward for 8 years to be set off against house-property income alone. Non-speculative business loss can be set off against any head except salary in the current year, and carries forward 8 years against business income. Speculative business loss and losses from owning racehorses are ring-fenced to the same activity and carry forward only 4 years. Short-term capital loss can be set off against either short- or long-term gains; long-term capital loss can only go against long-term gains; both carry forward 8 years. Unabsorbed depreciation carries forward indefinitely. The critical condition: except for house-property loss, you must file your return by the due date under section 139(1) to carry any loss forward — file late and the right is simply lost.

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How it is calculated

House-property loss can be set off against any head in the same year, but only up to ₹2,00,000, and the balance carries forward for 8 years to be set off against house-property income alone. Non-speculative business loss can be set off against any head except salary in the current year, and carries forward 8 years against business income. Speculative business loss and losses from owning racehorses are ring-fenced to the same activity and carry forward only 4 years. Short-term capital loss can be set off against either short- or long-term gains; long-term capital loss can only go against long-term gains; both carry forward 8 years. Unabsorbed depreciation carries forward indefinitely. The critical condition: except for house-property loss, you must file your return by the due date under section 139(1) to carry any loss forward — file late and the right is simply lost.

Frequently asked questions

What happens if I file my ITR late — can I still carry forward losses?

No, except for house-property loss and unabsorbed depreciation. Carry-forward of business and capital losses requires the return to be filed by the section 139(1) due date. A belated return forfeits the right permanently.

Can I set off a capital loss against my salary?

No. Capital losses can only be set off against capital gains. Similarly, business loss cannot be set off against salary income.

How long can capital losses be carried forward?

Eight assessment years. Short-term capital loss can be set off against short- or long-term gains; long-term capital loss only against long-term gains.

Do losses carry forward under the new tax regime?

Set-off and carry-forward continue to operate, but the new regime disallows certain deductions and restricts set-off of house-property loss against other heads. Confirm your position with a CA.

Related reading

India Law Simplified is an AI-assisted tool, not a substitute for a licensed CA or advocate. Tax rules and limits change with each Finance Act — verify before relying on any figure.