Section 112 of the Income-tax Act, 2025 carries forward an unabsorbed business loss, other than a speculation loss, for up to eight tax years. It may be set off against profits of any business or profession, and takes priority over carried-forward depreciation.
What section 112 does
Section 112 carries forward the ordinary business loss — the successor to section 72 of the Income-tax Act, 1961. It applies to a loss under the head Profits and gains of business or profession that is not a speculation loss; speculation is dealt with separately in section 113.
In later years, the loss may be set off against the profits and gains of any business or profession carried on by the assessee. Continuity of the same business is not required — the loss of a discontinued line can meet the profits of a new one.
Two limits matter: the eight-year ceiling, and the priority rule in sub-section (3) — where an allowance under section 33(11) (unabsorbed depreciation) or section 45(7) is also to be carried forward, effect is first given to section 112.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 72(1) | Carry forward of business loss | 112(1) |
| 72(3) | Eight-year limit | 112(2) |
| 72(2) | Business loss set off before unabsorbed depreciation | 112(3) |
| 32(2) | Unabsorbed depreciation | 33(11) |
| 73 | Speculation business loss | 113 |
| 80 | Timely return required | 121 |
Section 112 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — what is carried forward and against what
Where a loss under the head Profits and gains of business or profession, not being a loss sustained in a speculation business, cannot be wholly set off against income under any other head as per section 109, the unabsorbed amount is carried forward and (i) set off against the profits and gains of any business or profession carried on by the assessee in that year; and (ii) if it cannot be wholly set off, carried forward again, and so on.
The business need not be the same
The words are 'any business or profession carried on by him', not 'the business in which the loss was incurred'. A trader who closes one line and starts another may still use the old loss against the new profits, provided the loss is properly carried forward and the return conditions were met.
Sub-section (2) — the eight-year limit
No loss shall be carried forward under this section for more than eight tax years immediately succeeding the tax year for which the loss was first computed. Unabsorbed depreciation under section 33(11), by contrast, has no such time limit — which is why the split between the two matters.
Sub-section (3) — business loss is set off first
Where any allowance or part of it under section 33(11) — unabsorbed depreciation — or section 45(7) is to be carried forward, effect shall first be given to the provisions of this section. Because the section 112 loss expires in eight years while unabsorbed depreciation does not, using the time-limited loss first is to the taxpayer's advantage — and the Act mandates it.
What is not covered here
Speculation losses go to section 113, specified business losses to section 114, and losses from a specified activity to section 115. Restrictions on closely held companies and firm succession are in section 119, and losses cannot be set off against undisclosed income found in search or survey under section 120.
Worked example
A company has the following position.
| Tax year | Item | Amount |
|---|---|---|
| 2026-27 | Business loss (before depreciation) | ₹40,00,000 |
| 2026-27 | Unabsorbed depreciation under section 33(11) | ₹18,00,000 |
| 2027-28 | Profits of a different business started that year | ₹32,00,000 |
| Set off in 2027-28 | Working | Amount |
|---|---|---|
| Brought-forward business loss under section 112 | Applied first, as sub-section (3) requires | (₹32,00,000) |
| Balance business loss carried to 2028-29 | ₹40,00,000 − ₹32,00,000 | ₹8,00,000 |
| Unabsorbed depreciation | Not used this year; carried forward under section 33(11) with no time limit | ₹18,00,000 |
| Taxable business income 2027-28 | Nil |
The order set by sub-section (3) works in the taxpayer's favour here: the ₹32,00,000 of profit absorbs the time-limited business loss rather than the open-ended depreciation. The ₹8,00,000 balance must be used by tax year 2034-35; the ₹18,00,000 of depreciation can wait indefinitely.
Compliance checklist and due dates
- File the loss return by the section 263(1) due date; section 121 denies the carry forward otherwise.
- Apply the brought-forward business loss before unabsorbed depreciation, as sub-section (3) requires.
- Track the eight-year expiry per year of loss; unabsorbed depreciation under section 33(11) has no limit.
- Segregate speculation losses (section 113), specified business losses (section 114) and specified activity losses (section 115).
- For a closely held company, check the shareholding continuity restriction in section 119 before assuming the loss survives.
- Remember losses cannot be set off against undisclosed income found in search, requisition or survey — section 120.
Common mistakes
- Setting off unabsorbed depreciation before the business loss and letting the time-limited loss lapse.
- Assuming the loss can only be used against the same business. Any business or profession qualifies.
- Treating a speculation loss as an ordinary business loss.
- Overlooking the section 119 shareholding test for a closely held company.
- Filing the loss return late.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.