Set Off and Carry Forward of Losses Under New Tax Act 2025
- Sections 70-80 renumbered to 108-122 under the Income Tax Act 2025. Substance unchanged.
- House property loss: Up to Rs 2 lakh can be set off against other heads each year.
- Business loss: Carry forward for 8 years against future business income.
- Critical condition: File ITR by the due date to preserve the carry forward. Belated returns lose this right.
If you have incurred losses from business, capital gains, house property, or other sources and want to set them off against your other income or carry them forward, the rules continue under the new act. The old Sections 70 to 80 are now Sections 108 to 122 of the Income Tax Act 2025.
Sections 70-80 → 108-122: What Changed
Same Head Set Off (Section 108)
Losses from one source can first be set off against income from another source under the same head:
- Business loss from one business can be set off against profit from another business you run
- Short-term capital loss can be set off against both short-term and long-term capital gains
- Long-term capital loss can only be set off against long-term capital gains - not short-term gains
- Loss from house property (one house) can be set off against income from another house property
Inter-Head Set Off (Section 109)
If losses remain after same-head set off, they can be set off against income from other heads, with restrictions:
- House property loss - can be set off against any other head, but limited to Rs 2 lakh per year
- Business loss - can be set off against any head except salary income
- Capital loss - cannot be set off against any other head. Must be carried forward
- Speculation loss - can only be set off against speculation profits. Cannot be set off against anything else
Carry Forward Rules
Losses that cannot be fully set off in the current year can be carried forward to future years:
- Business loss (non-speculative) - carry forward for up to 8 assessment years. Can be set off only against business income in future years
- Capital loss - carry forward for up to 8 assessment years. Short-term capital loss against any capital gains; long-term capital loss against long-term capital gains only
- House property loss (amount exceeding Rs 2 lakh) - carry forward for up to 8 assessment years. Can be set off against house property income only
- Speculation loss - carry forward for up to 4 assessment years. Can be set off against speculation income only
- Loss from specified business (Section 35AD type) - carry forward with no time limit. Can be set off against income from specified business only
Capital Loss Restrictions
Capital loss rules are the most commonly misunderstood. Here is what you need to know:
- Long-term capital loss can only be set off against long-term capital gains - never against short-term gains or any other income
- Short-term capital loss is more flexible - can be set off against both short-term and long-term capital gains
- Equity shares/mutual funds - if you sell listed shares or equity mutual funds at a loss within the same financial year, you can set this off against other capital gains
- Cannot set off against salary, business, or other income - capital losses stay within the capital gains head only
Critical Rule: File Your Return on Time
Under new Section 122 (old Section 80), you can carry forward losses only if you file your income tax return by the due date. Late filing means you lose the right to carry forward, with one exception:
- House property loss - can be carried forward even if you file a belated return
- All other losses (business, capital, speculation) - must file by the original due date to preserve carry forward
This is one of the most important reasons to file your return on time, even if you have no tax to pay.
Under Section 122 (old 80), business losses, capital losses, and speculation losses can be carried forward ONLY if you file your return by the original due date. Belated returns preserve only house property loss carry-forward. This is the single biggest reason to file ITR on time in a loss year.
Frequently Asked Questions
Can I carry forward capital losses to next year?
Yes. Capital losses can be carried forward for up to 8 assessment years. Short-term capital loss can be set off against any capital gains, while long-term capital loss can only be set off against long-term capital gains.
What is the house property loss set-off limit?
House property loss (from home loan interest exceeding rental income) can be set off against other income up to Rs 2 lakh per year. Any excess loss above Rs 2 lakh can be carried forward for 8 years and set off against house property income only.
Do I need to file ITR on time to carry forward losses?
Yes. Under Section 122 (old Section 80), you must file your return by the original due date to carry forward business losses, capital losses, and speculation losses. House property loss is the only exception, it can be carried forward even with belated filing.
Can business loss be set off against salary income?
No. Under Section 109 (old Section 71), business loss can be set off against income from any other head except salary. It can be set off against rental income, capital gains, or other sources, but never against salary.
For the filing-on-time imperative that preserves your carry-forward right, see ITR filing deadlines 2026. For capital gains classification (LTCG vs STCG) that drives the set-off rules, see capital gains now Section 67.
Disclaimer: This article provides general information about the Income Tax Act 2025 and is not tax advice. Consult a qualified Chartered Accountant for advice specific to your situation.
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