Legal Reference
Sections 90-95 (set-off and carry forward), ITA 2025 | Must file ITR on time to carry forward | Speculation loss 4 years, business/capital loss 8 years, unabsorbed depreciation indefinite | Corresponds to Sections 70-80 of ITA 1961
1. Loss Rules: First Intra-Head, Then Inter-Head
Under ITA 2025, losses are first set off within the same head of income (intra-head set-off), and then any remaining loss is set off against other heads (inter-head set-off), subject to restrictions. The order matters — you cannot skip intra-head set-off and go directly to inter-head.
2. Intra-Head Set-Off
- House property: loss from one HP set off against income from another HP
- Business: loss from one business set off against profit from another business (within non-speculative)
- Capital gains: STCL set off against STCG from other assets; LTCL set off against LTCG from other assets
3. Inter-Head Set-Off Rules
| Loss Type | Can Set Off Against | Cannot Set Off Against |
|---|
| House property loss (max Rs 2L) | Any income head | — |
| Business loss (non-speculative) | Capital gains, HP income, other sources | Salary income |
| Speculation loss | Speculation income only | All other income |
| STCL | STCG and LTCG | Salary, business, other sources |
| LTCL | LTCG only | STCG, salary, business, other sources |
4. Carry Forward Periods
| Loss Type | Carry Forward | Set-Off Against (Future) |
|---|
| Non-speculative business loss | 8 years | Business income only |
| Speculation loss | 4 years | Speculation income only |
| STCL | 8 years | STCG and LTCG |
| LTCL | 8 years | LTCG only |
| Unabsorbed depreciation | Indefinite | Any income except salary |
| HP loss carry forward | 8 years | HP income only |
5. CRITICAL: File ITR on Time
Business losses and capital losses can only be carried forward if the ITR was filed by the original due date (not belated). Filing a belated return causes forfeiture of the right to carry forward business and capital losses. Only unabsorbed depreciation and house property losses survive belated filing. This is one of the most important reasons to file ITR on time.
6. F&O Losses: Non-Speculative Business Loss
F&O (futures and options) trading is treated as non-speculative business under the proviso to Section 43(5) of ITA 2025. F&O losses are non-speculative business losses — they can be set off against any income except salary in the current year, and carried forward for 8 years against business profit. Unlike speculation losses, F&O losses can offset rental income, capital gains from other assets, and other source income.
7. Why TaxClue
Optimal loss utilisation requires careful identification — speculative vs non-speculative, STCL vs LTCL — and correct scheduling in ITR. TaxClue maximises loss set-offs and carry-forwards. Contact us 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 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 — not STCG, salary, business income, or other sources. Short-term capital loss (STCL) is more flexible — it can set off against both STCG and LTCG. Both types of capital loss can be carried forward for 8 years and set off only against capital gains in future years.
Can business loss be set off against salary?
No. Non-speculative business losses cannot be set off against salary income — this is an absolute prohibition under ITA 2025. Business losses can be set off against capital gains, house property income, and other sources income (but not salary) in the current year. When carried forward (for up to 8 years), they can only be set off against business income.
Why is filing ITR on time critical for losses?
Under ITA 2025, business losses and capital losses can only be carried forward to future years if the ITR was filed by the original due date (31 July for non-audit cases). A belated return (filed after due date) forfeits the right to carry forward these losses. Only unabsorbed depreciation and house property losses survive belated filing. This rule makes timely ITR filing essential even in loss years where no tax is due.
Are F&O trading losses speculative or non-speculative?
F&O (futures and options) losses are non-speculative business losses under the proviso to Section 43(5) of ITA 2025. F&O is explicitly excluded from speculative transactions. Non-speculative F&O losses can be set off against capital gains, rental income, and other sources (but not salary) in the current year, and carried forward for 8 years against business income. This is more flexible than speculation losses which can only offset speculation income.
Can unabsorbed depreciation be carried forward indefinitely?
Yes. Unabsorbed depreciation — the portion of depreciation under Section 35 that exceeds business income in a year — can be carried forward indefinitely with no time limit. In future years, it can be set off against any income except salary. This makes unabsorbed depreciation a valuable long-term deferred tax asset for capital-intensive businesses. It survives even a change of ownership (unlike business losses which have the 51% shareholding rule).
