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14. Examine in detail the income tax provisions regarding set-off of losses and carryforward of losses while computing the total income.

Set-off and carry-forward of losses under the Income Tax Act allow taxpayers to adjust current-year losses against profits or carry them forward to reduce future tax liabilities. The process follows a strict sequential hierarchy: intra-head adjustment, inter-head adjustment, and finally, carry-forward. [1, 2]



1. Hierarchy of Set-Off
Taxpayers must exhaust options sequentially before carrying losses forward.
  1. Intra-Head Adjustment (Section 70): Loss from one source is offset against income from another source within the same head (e.g., Loss from Business A set off against profit from Business B).
  2. Inter-Head Adjustment (Section 71): If losses remain after intra-head adjustment, they can be set off against income from a different head. [1, 2]
2. General Rules & Restrictions
  • No Set-Off against Winnings: Losses cannot be offset against winnings from lotteries, crossword puzzles, card games, betting, or gambling.
  • No Set-Off against Salary: Business/profession losses cannot be set off against Salary income.
  • House Property Loss: Under the older tax regimes, inter-head loss set-off for house property is capped at ₹2 Lakhs per year. Unabsorbed loss beyond this limit is carried forward. Under the new tax regime (Section 115BAC), inter-head set-off for house property losses is not allowed. [4]
3. Carry Forward of Losses (Specific Provisions)


Unabsorbed losses can be carried forward for future adjustment. To do this, the taxpayer must file their Income Tax Return (ITR) within the prescribed due dates. [4, 7]
Head of Loss [4, 7, 8, 9, 10] Carry-Forward Period Eligible Income for Set-Off
House Property Loss 8 Assessment Years Only against 'Income from House Property'
Non-Speculative Business Loss 8 Assessment Years Only against 'Profits and Gains of Business or Profession'
Speculative Business Loss 4 Assessment Years Only against income from a Speculative Business
Specified Business Loss (Sec 35AD) Indefinitely Only against income from the same Specified Business
Capital Losses 8 Assessment Years STCL against STCG or LTCG; LTCG only against LTCG


4. Essential Conditions
  • Business Continuity: For regular business losses, it is not mandatory to continue the same business in the years in which the loss is being set off.
  • Ownership Constraint: Losses can typically only be carried forward and claimed by the original assessee who incurred them (except in cases of specific corporate succession, amalgamation, or inheritance). [1, 10, 11]
For detailed interactive tools, step-by-step guides, or to file your returns with applicable forms, consult the official Income Tax India Portal or utilize their help resources at Income Tax Department Help. [4, 12, 13, 14]



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