3. What do you mean by set-off losses?
Setting-off losses means using financial losses from one source to offset or balance out profits from another source, thereby reducing your total taxable income. This tax-planning mechanism lowers your overall tax liability within a given financial year. [1, 2]
Tax laws (such as those in India) strictly dictate how losses can be adjusted across different categories:
- Intra-head set-off: Offsetting a loss from one source against a profit from another source under the same category of income. (e.g., offsetting a loss from Business A against a profit from Business B).
- Inter-head set-off: Offsetting a loss from one category of income against a profit from a different category. (e.g., using a house property loss to reduce your taxable salary income, up to a permitted limit). [1, 3]
If your losses are too large to be completely set off in the same year, the tax code usually allows you to carry forward these unadjusted losses to offset future income for a set number of years. [1]
To learn more about the specific limits and timeframes for your jurisdiction, you can read the comprehensive loss set-off guidelines provided by ClearTax or official resources from the Income Tax Department . [8]
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