Legal Reference
Section 90 (set-off of losses), Section 91 (carry forward and set-off), Section 93 (capital gains losses), Section 94 (speculation losses), ITA 2025 | 4 years (speculation), 8 years (business/capital), indefinite (unabsorbed depreciation) | Corresponds to Sections 71-80 of ITA 1961
1. Loss Rules: A Complete Map
The loss set-off and carry-forward provisions under Sections 90-95 of ITA 2025 determine how losses from one income source can reduce tax on profits from another. Understanding these rules can significantly reduce tax liability in years with mixed profits and losses across different income heads.
2. Intra-Head Set-Off: Same Head First
Losses from one source of income can be set off against profits from another source within the SAME head of income first:
- Loss from one house property can be set off against income from another house property
- STCL from one asset can be set off against STCG from another asset
- Business loss (non-speculative) from one business can be set off against profits from another business
3. Inter-Head Set-Off: Cross-Head Rules
| Loss Type | Can Set Off Against | Cannot Set Off Against |
|---|
| House property loss (max Rs 2L) | Any other head (salary, business, capital gains, other sources) | — |
| Business loss (non-speculative) | Any head EXCEPT salary | Salary income |
| Speculation loss | Speculation income only | Any other income |
| LTCL (long-term capital loss) | LTCG only (Section 112A LTCG too) | STCG, business income, salary |
| STCL (short-term capital loss) | Both LTCG and STCG | Business income, salary |
| F&O loss (treated as business loss) | Any head except salary (if non-speculative) | Salary |
4. Carry-Forward Periods
| Loss Type | Carry-Forward Period | Set-Off in Future Years Against |
|---|
| Non-speculative business loss | 8 years | Business profit only |
| Speculative business loss | 4 years | Speculative profit only |
| Capital loss (STCL) | 8 years | STCG and LTCG |
| Capital loss (LTCL) | 8 years | LTCG only |
| Unabsorbed depreciation | Indefinite (no time limit) | Any head except salary |
| House property loss (carry forward) | 8 years | House property income only |
5. Must File ITR to Carry Forward
This is a critical rule: losses can only be carried forward to future years if the return for the year in which the loss occurred was filed by the due date. A belated return (filed after the due date) still carries forward losses only for unabsorbed depreciation and house property losses — other losses (business, capital) cannot be carried forward if the return is filed late. This is one of the strongest reasons to file ITR on time even if no tax is due.
6. Change of Ownership: 51% Shareholding Rule
For companies, business losses can only be carried forward if the shareholders who owned 51%+ of the shares in the loss year continue to hold 51%+ in the year of set-off. This prevents trading in loss-making shell companies purely to acquire their carried-forward losses. Exception: startup companies get relaxation — losses can be carried forward even after shareholding change.
7. Why TaxClue
Correct identification and application of loss set-off rules can save significant tax. Missed set-offs and carry-forwards, or wrong classification (speculative vs non-speculative), are common ITR errors. TaxClue ensures optimal loss utilisation in ITR filing. Contact us for tax planning and ITR with losses under ITA 2025.
Disclaimer
This article is for general informational and educational purposes only. It does not constitute legal, financial, or professional tax advice. Readers are advised to consult a qualified Chartered Accountant or tax professional before making any decisions. TaxClue Consultech Pvt Ltd accepts no liability. All case studies and examples in this article are illustrative only and do not represent actual persons or transactions.
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❓ Frequently Asked Questions
Can LTCL (long-term capital loss) be set off against STCG?
No. Under Section 93 of ITA 2025, long-term capital loss (LTCL) can only be set off against long-term capital gains (LTCG) — not against short-term capital gains (STCG) or any other income. However, short-term capital loss (STCL) is more flexible — it can be set off against both STCG and LTCG. Both LTCL and STCL can be carried forward for 8 years to be set off against future capital gains.
Can a business loss be set off against salary?
No. Under Section 90 of ITA 2025, non-speculative business losses cannot be set off against salary income. They can be set off against any other income — business profits from other businesses, capital gains, house property income, or income from other sources — but not salary. In future years when carried forward, business losses can only be set off against business profits, not against other heads.
Why is it important to file ITR on time to carry forward losses?
Under ITA 2025, losses from business and capital gains can only be carried forward to future years if the original ITR was filed by the due date (31 July for non-audit cases). Filing a belated return (after due date) forfeits the right to carry forward business losses and capital losses. Only unabsorbed depreciation and house property losses survive belated filing. This is one of the strongest reasons to file ITR on time — even if there is no taxable income.
How long can F&O trading losses be carried forward?
F&O (futures and options) trading losses are generally treated as non-speculative business losses (not speculative) under ITA 2025 — because F&O is not treated as speculation under the proviso to Section 43(5). As non-speculative business losses, they can be carried forward for 8 years and set off against business profits (including future F&O profits). They cannot be set off against salary but can be set off against other business income.
What is unabsorbed depreciation and can it be carried forward indefinitely?
Unabsorbed depreciation is the portion of depreciation under Section 35 that could not be set off against business income in the current year due to insufficient profits. Unlike other losses, unabsorbed depreciation can be carried forward indefinitely — with no 8-year time limit. It can also be set off against any income head in future years (except salary). This makes unabsorbed depreciation a valuable long-term tax asset for capital-intensive businesses.
