Set-Off Losses under Income Tax means adjusting the loss against the taxable income earned; after that, the amount of loss remaining can be carried forward to future years. Therefore, the carry forward losses can be set off against future incomes. The Income Tax Act has, however, specified rules to set off and carry forward losses under each head of income. The taxpayer cannot carry forward losses to future years if the income tax return for the year in which loss is incurred is not filed on the Income Tax Website within the due date as per Sec 139(1). However, loss under the head Income from House Property can be carried forward even if the return is filed after the due date.
Set Off Losses
- Intra-head Set Off – Loss from one source of income can be set off against income from another source of income under the same head of Income. Eg: Loss from business income can be adjusted against profit from presumptive income.
- Inter-head Set Off – Loss from one head of income can be set off against income from another head of income. Eg: Loss from business income can be adjusted against income from house property.
Loss under any head of income should be first set off against the income under the same head i.e. Intra-head set off. And then only can be use against other heads of income i.e. Inter-head set off. Below is a table with rules for set off.
Rules to Set Off Loss in Current Year
For Example
Non-Speculative Business Loss: INR 5,00,000
Speculative Business Income: INR 1,00,000
House Property Income: INR 2,50,000
Solution
Non-Speculative Business Loss should be set off in the following order:
- Speculative Business Income (Intra-head set off) – INR 1,00,000
- House Property Income (Inter-head set off) – INR 2,50,000
- Carry Forward Loss to future years – INR 1,50,000 (5,00,000 – 1,00,000 – 2,50,000)
Carry Forward Loss
Once the taxpayer adjusts losses using intra-head set off and inter-head set off rules, then the taxpayer can carry forward the remaining losses to future years. The carry forward loss can be adjusted against future incomes. Therefore, any Loss under any head of income except House Property Loss cannot be carried forward to future years if the ITR has not been filed within the due date as per Sec 139(1). Below is the table with rules to carry forward loss and set off against future incomes.
Rules to Carry Forward Loss & Set Off against income in Future Years
| Nature of Loss | No. of Years | Set off in Future against |
| House Property Loss | 8 Years | House Property Income |
| Speculative Business Loss | 4 Years | Speculative Business Income |
| Non-Speculative Business Loss | 8 Years | Non-Speculative Business Income or Speculative Business Income |
| LTCL | 8 Years | LTCG |
| STCL | 8 Years | STCG / LTCG |
| Horse Race Loss | 4 Years | Race Horse Income |
| Specified Business Loss u/s 35AD | Indefinite Period | Specified Business Income u/s 35AD |
| Other Sources Loss | cannot be carried forward | Not Applicable |
For Example
- FY 2018-19 (AY 2019-20)
Non-Speculative Business Loss: INR 5,00,000
Speculative Business Income: INR 1,00,000
House Property Income: INR 2,50,000 - FY 2019-20 (AY 2020-21)
Speculative Business Income: INR 30,000
Non-Speculative Business Income: INR 1,40,000
Solution
- FY 2018-19 (AY 2019-20)
Non-Speculative Business Loss should be set off in the following order:- Speculative Business Income (Intra-head set off) – INR 1,00,000
- House Property Income (Inter-head set off) – INR 2,50,000
- Carry Forward Loss to future years – INR 1,50,000 (5,00,000-1,00,000-2,50,000)
- FY 2019-20 (AY 2020-21)
Non-Speculative Business Loss should be set off in the following order:- Carry Forward Loss – INR 1,50,000
- Non-Speculative Business Income – INR 1,40,000
- Speculative Business Income – INR 10,000
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FAQs
Loss from equity intraday trading is a speculative business loss. Speculative loss can be set off against Speculative Profits only. Thus, it cannot be adjusted against F&O trading income. However, you can carry forward the loss for 4 years and adjust it against speculative profits in future.
Loss from F&O trading is a non-speculative business loss. Non-Speculative Loss can be set off against any income except Salary Income in the current year. Thus, you can adjust non-speculative loss against interest income (2 lacs) but not salary income. However, you can carry forward the remaining loss (8 lacs) for 8 years and adjust it against business & profession income (speculative and non-speculative) in future.
You cannot carry forward loss to future years if the income tax return for the year in which loss is incurred is not filed within the due date as per Sec 139(1). However, if you have incurred loss under head house property, you can carry forward the loss even if the return is filed after the due date.
