Sections 113 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Chapter VII allows losses to be set off and carried forward. Sections 113, 114 and 115 are three ring-fenced rules: a speculation business loss can be set off only against profits of another speculation business, a loss of a specified business only against another specified business, and a loss from owning and maintaining race horses only against income of that activity. This article reads the three sections as per the Income-tax Act, 2025 as amended by the Finance Act, 2026; later amendments, rules and notifications should be checked. For help claiming and carrying forward losses in your return, see our income tax return filing service.
A speculation business loss is set off only against speculation profits and carried forward for not more than four tax years (section 113). A specified business loss (the business referred to in section 46) is set off only against another specified business (section 114). A race horse loss is set off only against income of that activity and carried forward for not more than four tax years (section 115). A company that buys and sells shares of other companies is deemed to carry on speculation business to that extent, with two exceptions.
How these sections fit in Chapter VII
The general rules are in sections 108 to 112 and 121: set-off within a head, set-off against other heads, and carry forward of house property, capital and business losses. See the live notes on section 108 (set off within the same head) and section 112 (business loss carry forward). Sections 113 to 115 deal with three special losses that cannot move into those general rules without restriction.
Section 113: speculation business
Set-off and carry forward: sub-sections (1) to (3)
- Sub-section (1): any loss computed in respect of a speculation business is set off only against profits and gains of another speculation business.
- Sub-section (2): if the loss cannot be wholly set off under sub-section (1) in the tax year, the loss not so set off (or the whole loss) is carried forward to the following tax year and set off against profits and gains of any speculation business for that year; any remainder is carried forward again, and so on.
- Sub-section (3): no loss is carried forward under the section for more than four tax years immediately succeeding the tax year for which the loss was first computed.
Example (invented). Vikrant's speculation business shows a loss of Rs. 2,00,000 in the first tax year and there is no other speculation profit. The loss is carried forward. In the second tax year his speculation business earns Rs. 50,000, so Rs. 50,000 is set off and Rs. 1,50,000 remains. He can keep carrying the balance forward, but not beyond the fourth tax year after the year in which the loss was first computed.
Allowances: sub-section (4)
Where an allowance, or part of one, under section 33(11) or section 45(7) related to the speculation business is to be carried forward, effect is first given to section 113. The allowances are described in their own sections.
Companies dealing in shares: sub-sections (5) and (6)
Under sub-section (5), where any part of the business of an assessee company consists of the purchase and sale of shares of other companies, the assessee is deemed to be carrying on a speculation business to the extent to which its business consists of such purchase and sale.
Sub-section (6) switches that off for a company if:
- (a) its gross total income consists mainly of income chargeable under "Income from house property", "Capital gains" or "Income from other sources"; or
- (b) its principal business is trading in shares, banking, or the granting of loans and advances.
What a speculative transaction is for business income is in the definition in section 66(31); see our article on section 66(27) to (40).
Section 114: specified business
- Sub-section (1): any loss computed in respect of a specified business, referred to in section 46, is set off only against profits and gains of another specified business.
- Sub-section (2): an unabsorbed loss is carried forward to the following tax year and set off against profits and gains of any specified business for that year, and so on.
Unlike sections 113 and 115, section 114 as printed does not state any limit on the number of tax years for which the loss may be carried forward. The reader should not read a four-year limit into it. What the specified business is lies in section 46; see our article on section 46.
Section 115: specified activity (race horses)
- Sub-section (1): a loss incurred by the assessee in the specified activity in any tax year is set off only against income from the specified activity.
- Sub-section (2): an unabsorbed loss is carried forward to the following tax year and set off against income of the activity for that year, and so on.
- Sub-section (3): no loss is carried forward for more than four tax years immediately succeeding the tax year for which it was first computed.
Definitions in sub-section (4)
| Term | Meaning |
|---|---|
| Horse race | A horse race upon which wagering or betting may be lawfully made |
| Income by way of stake money | The gross amount of prize money received on a race horse or race horses by the owner on account of the horse or horses winning a particular position in a horse race |
| Loss incurred by the assessee in specified activity | The amount by which the income by way of stake money, if any, falls short of the expenditure (not being capital expenditure) incurred wholly and exclusively for maintaining race horses |
| Race horses | Horses owned and maintained by the assessee for running in a horse race |
| Specified activity | The activity of owning and maintaining race horses |
Example (invented). Zubin owns two race horses. In a tax year stake money is Rs. 1,20,000 and expenditure (not capital) wholly and exclusively for maintaining them is Rs. 1,70,000. The loss in the specified activity is Rs. 1,70,000 – Rs. 1,20,000 = Rs. 50,000, which can be set off only against income from the same activity, now or in the following four tax years.
Comparison table
| Point | Section 113 | Section 114 | Section 115 |
|---|---|---|---|
| Loss of | Speculation business | Specified business (section 46) | Owning and maintaining race horses |
| Set off only against | Profits of another speculation business | Profits of another specified business | Income from the specified activity |
| Carry forward | To the following tax year, and so on | To the following tax year, and so on | To the following tax year, and so on |
| Time limit printed | Four tax years immediately succeeding | None printed | Four tax years immediately succeeding |
| Special rule | Company dealing in shares deemed in speculation (with exceptions); allowance carry-forward (4) | None | Definitions in (4) |
Need help with losses in your return?
Ring-fenced losses are easy to lose if a return is not filed or the loss is set off against the wrong head. Our income tax return filing team can help you track each loss and its years remaining. For the loss-return rule see the live note on section 121.
Key takeaways
- Speculation business loss: set off only against speculation profits; carry forward not more than four tax years.
- Specified business loss: set off only against another specified business; no time limit printed in section 114.
- Race horse loss: set off only against income of the activity; carry forward not more than four tax years.
- A company dealing in shares of other companies is deemed to carry on speculation business, subject to the exceptions in section 113(6).
- Allowances under section 33(11) or 45(7) of a speculation business follow section 113 first.
Read next
- Section 116: accumulated losses in amalgamation or demerger
- Sections 119–120: losses not carried forward and no set off against undisclosed income
- Section 112: business loss carry forward
- Income-tax Act 2025 Chapter VII
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.