Losses are adjusted in a fixed order: intra-head first (loss from one source against income under the same head), then inter-head (across heads), then carry forward. Key limits: business loss cannot be set off against salary; house property loss can offset other income only up to Rs2,00,000 a year; long-term capital loss (LTCL) sets off only against LTCG; short-term capital loss (STCL) against STCG or LTCG. Most losses carry forward 8 years (speculative only 4; unabsorbed depreciation indefinitely). To carry forward, you must file the ITR by the due date.
Which Loss Sets Off Against Which Income
This covers inter-head (cross-head) set-off — the most-used and most-misread rules. Intra-head set-off (within the same head) is applied first.
| Loss Type | Can Set Off Against | Cannot Set Off Against | Cap / Condition |
|---|---|---|---|
| Business loss (non-speculative) | House property, capital gains, other sources, other business | Salary | No cap; carry forward needs on-time ITR |
| Speculative business (e.g. intraday equity) | Speculative business profit only | Everything else | Carry forward 4 years |
| House property loss | Salary, business, capital gains, other sources | — | Inter-head capped at Rs2,00,000/year |
| Short-term capital loss (STCL) | STCG and LTCG | Salary, business, other sources | 8-year carry forward |
| Long-term capital loss (LTCL) | LTCG only | STCG, salary, business, other sources | 8-year carry forward |
| F&O loss (non-speculative business) | House property, capital gains, other sources, other business | Salary | 8-year carry forward vs business income |
| Unabsorbed depreciation | Any income except salary | Salary | Carry forward indefinite |
Set-off and carry-forward rules are substantively unchanged under the Income-tax Act, 2025 (renumbered), which applies from AY 2026-27. Verify on incometax.gov.in before filing.
Order of Set-Off — You Cannot Skip Steps
The order is not optional. You must exhaust intra-head set-off before inter-head, and only the genuinely unabsorbed balance is carried forward.
- 11 · Intra-headSame head, different source
- 22 · Inter-headAcross heads (limits apply)
- 33 · Carry forwardFile ITR by due date
- 44 · Future set-offOnly against allowed head
House property loss — inter-head friendly
- Sets off against salary and all other heads
- But only up to Rs2,00,000 in a year
- Excess carries forward 8 years
- Set off later vs house-property income only
- Allowed in old and new regime
Business loss — salary is off-limits
- Cannot touch salary income at all
- Sets off against other heads (not salary)
- Carry forward 8 years
- Future set-off only vs business income
- Speculative business is even more restricted
Under the default new regime, the Rs2L house-property loss can still offset salary, but house-property loss cannot be carried forward or set off against income from house property computed under the new-regime rules, and many deductions that create such losses are not available. Compare regimes before deciding — use our old vs new regime calculator.
Choosing between the old and new regime with losses on the table?
Compare Regimes →
Carry Forward Periods by Loss Type
Any loss left after intra-head and inter-head set-off can be carried to later years — but each type has its own period and can be revived only against specific income.
| Loss Type | Carry Forward | Future Set-Off Against | On-time ITR Needed? |
|---|---|---|---|
| Non-speculative business loss | 8 years | Business income only | Yes |
| Speculative business loss | 4 years | Speculative business income only | Yes |
| House property loss (excess over Rs2L) | 8 years | House property income only | No — even in belated return |
| Short-term capital loss | 8 years | STCG and LTCG | Yes |
| Long-term capital loss | 8 years | LTCG only | Yes |
| Unabsorbed depreciation | Indefinite | Any income except salary | No restriction |
House property loss and unabsorbed depreciation are the only losses you can still carry forward even if the ITR is filed late.
How Set-Off Plays Out — A Simple Year
Salary + house property loss
Carried forward
Here Rs2,00,000 of the house-property loss reduces salary this year; the remaining Rs50,000 is carried forward and can be adjusted only against future house-property income for up to 8 years.
Home-loan interest creating a house-property loss?
See House Property Rules →F&O, Intraday and Capital Loss Rules
Trading losses trip up most filers. The tax head decides everything: F&O is non-speculative business, intraday equity is speculative business, and delivery-based shares are capital gains.
- F&O loss is a non-speculative business loss — set off against any income except salary; carry forward 8 years against business income. See F&O trading tax.
- Intraday equity loss is speculative — set off only against speculative profit; carry forward just 4 years.
- STCL (delivery shares held ≤12 months) sets off against STCG and LTCG; LTCL only against LTCG. More at tax on share trading.
- To carry forward business/F&O and capital losses you must file ITR-3 (or the applicable form) before the due date — a tax audit may apply to F&O turnover.
✓You keep the carry-forward if
- You file the ITR on or before the due date
- You report the loss in the correct schedule
- You use the right ITR form (usually ITR-3 for F&O)
- You reconcile the AIS / broker P&L
!You lose the carry-forward if
- You file a belated return (capital & business loss)
- You skip the loss schedule / declare nil
- You net speculative loss against non-speculative income
- You mismatch turnover and miss an audit
A carried-forward loss is a future tax asset. Filing on time to lock in a Rs1,00,000 capital loss can save real tax when you book gains in a later year — but one belated return wipes it out (except house-property loss and unabsorbed depreciation). Treat the due date as non-negotiable.
Traded F&O or shares at a loss this year? Lock in the carry-forward.
File My ITR-3 →The ITR Deadline That Protects Your Losses
Under Section 80 (renumbered in the Income-tax Act, 2025), most losses can be carried forward only if the return is furnished by the due date under Section 139(1) — generally 31 July for non-audit cases and 31 October for audit cases. The two exceptions are house property loss and unabsorbed depreciation.
- File ITR before the due date
- Use the correct ITR form
- Report loss in the loss schedule
- Reconcile AIS / TIS / broker P&L
- Check tax-audit applicability
- Carry forward only against the allowed head
- Set off intra-head before inter-head
- Keep books & broker statements
- e-Filing portal & utilities: incometax.gov.in
- Set-off & carry-forward: Chapter VI, Income-tax Act (Sections 70–80, as renumbered in the Income-tax Act, 2025)
- House property loss cap: Section 71(3A) — Rs2,00,000 inter-head limit
- Carry-forward conditional on timely return: Section 80 read with Section 139(1)
Disclaimer: This guide is general information based on the law and notifications in force when it was last updated. It is not professional advice for your case — rates, thresholds and due dates change, so check the current position with the official source before you act on it.