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 of losses can be set off against future incomes. The Income Tax Act has, however, specified rules to set off and carry forward of 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)
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 Set Off Losses and Carry Forward of Losses against Income in Future Years
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
Treatment of Loss as per New Tax Regime
With the introduction of Section 115BAC in Budget 2020, there were few changes in the treatment of losses as follows:
House Property Loss: As per the new income tax regime, only current year losses from house property can be set off against income from house property and not against any other Income.
Moreover, losses from income from house property cannot be carried forward in the new income tax regime.
Setting-Off Business/Profession Loss: In the case of a business income, an individual/ HUF cannot set off the brought forward business loss or unabsorbed depreciation and cannot carry forward these B&P losses and unabsorbed depreciation if they relate to deductions/exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC.
In simple terms, you can carry forward short-term & long-term capital losses, derivatives trading losses in the new tax regime. Since, only the losses relating to deductions & exemptions withdrawn under clause (i) of sub-section (2) of section 115BAC cannot be set off or carried forward, for eg: House property losses, additional depreciation, etc.
The image below gives a clear understanding of the treatment of losses in the new and old tax regime.
FAQs
I have incurred losses under equity intraday trading. Can I adjust it against F&O trading income?
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.
I have incurred losses of Rs. 10 lacs from F&O trading. I also have an Interest Income of Rs. 2 lacs and Salary Income of Rs. 6 lacs. Can I adjust F&O trading loss with salary income and interest income?
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.
I have not filed Income Tax Return before the due date of filing the return. Can I file the ITR to carry forward loss to future years?
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.
When filing your ITR, the losses are first set off against the respective heads and are then carried forward.
Since F&O trading is treated as non-speculative business income for Income Tax purposes:
The losses set off against any income head except salary
Intraday fno is classified under Non Speculative Business Income. So profits from the same can be adjusted against Losses from House Property Income or Losses from Other sources Income.
Since it is Non speculative business income, you can claim all eligible expense incurred for the business.
Hi,
I apologize if my question seems repeated.I did go through other queries and still couldn’t figure it out by myself.I hope you don’t mind and help me figure this out.
In the initial years of my trading, I incurred losses in F&O trading.
I’ve declared that in my ITR and filed it b4 due date.
Since the losses, I gave up F&O trading and now I am purely concentrating on holding shares for at the least 1 year before selling it off.
Now I was wondering if the gains from my shares (LTCG) can offset the the F&O losses of my initial years,partly or completely, over the coming years,as I plan to carry forward the F&O losses until it is 0 or the max no of years have passed…(8 years,i think so).
My doubt arose because at one place I saw that F&O losses can be set-off against any income other than salary and in another place, that they can be set-off against F&O gains or equity intraday gains only.
I would be grateful if you could point me in the right direction.
Thank you for your time.
Hey @Aby_Math, F&O trading is classified as non-speculative business income from the income tax perspective.
You can set off non-speculative business income against any income except salary for the current year i.e. for that financial year.
You can only set of bought forward non-speculative business loss against future speculative or non-speculative business incomes. Therefore, you cannot set off F&O loss against your capital gains
Since F&O trading is treated as non-speculative business income you are required to file ITR 3.
You can carry forward the non-speculative business loss to 8 years, there is no limit on the amount of loss you can carry forward.
No, all of them are not treated as STCG, here is how they are classified:
F&O Loss - Non-speculative business loss
Intraday Loss - Speculative business loss
Equity, mutual fund, debt loss - STCL/LTCG depending on the duration
The rules to set off the loss against current year losses & for bought forward losses are a bit different.
For instance, you can set off F&O losses (non-speculative business loss) against any income except salary. However, you can only set off the bought forward F&O loss against business income.
This article might be helpful to help you understand it better:
Hi @raj_gupta,
When filing your ITR, the losses are first set off against the respective heads and are then carried forward.
Since F&O trading is treated as non-speculative business income for Income Tax purposes:
Like always, Quicko has special discounts for Zerodha Traders.
For details regarding ITR filing, you can drop your contact number here.
Hi @ADITYA_VASISTHA
Intraday fno is classified under Non Speculative Business Income. So profits from the same can be adjusted against Losses from House Property Income or Losses from Other sources Income.
Hope this helps!
Hi @ADITYA_VASISTHA
There is no other way to adjust the profits then.
Since it is Non speculative business income, you can claim all eligible expense incurred for the business.
Hi,
I apologize if my question seems repeated.I did go through other queries and still couldn’t figure it out by myself.I hope you don’t mind and help me figure this out.
In the initial years of my trading, I incurred losses in F&O trading.
I’ve declared that in my ITR and filed it b4 due date.
Since the losses, I gave up F&O trading and now I am purely concentrating on holding shares for at the least 1 year before selling it off.
Now I was wondering if the gains from my shares (LTCG) can offset the the F&O losses of my initial years,partly or completely, over the coming years,as I plan to carry forward the F&O losses until it is 0 or the max no of years have passed…(8 years,i think so).
My doubt arose because at one place I saw that F&O losses can be set-off against any income other than salary and in another place, that they can be set-off against F&O gains or equity intraday gains only.
I would be grateful if you could point me in the right direction.
Thank you for your time.
Hey @Aby_Math, F&O trading is classified as non-speculative business income from the income tax perspective.
You can set off non-speculative business income against any income except salary for the current year i.e. for that financial year.
You can only set of bought forward non-speculative business loss against future speculative or non-speculative business incomes. Therefore, you cannot set off F&O loss against your capital gains
Hi @pradeepsalian,
Since F&O trading is treated as non-speculative business income you are required to file ITR 3.
You can carry forward the non-speculative business loss to 8 years, there is no limit on the amount of loss you can carry forward.
No, all of them are not treated as STCG, here is how they are classified:
The rules to set off the loss against current year losses & for bought forward losses are a bit different.
For instance, you can set off F&O losses (non-speculative business loss) against any income except salary. However, you can only set off the bought forward F&O loss against business income.
This article might be helpful to help you understand it better: