SUMMARY

Set-off of Losses

1.Inter-source set-off: Sec 70 Loss from one source of income can be set-off against
income from other source of income under the same head except

Speculation losses,
Long-term Capital losses and
Losses from owning and maintaining race horses.
Loss cannot be set off against winning from lottery, cross word puzzles etc.

2.Inter-head set-off: sec 71 Loss from one head of income can be set-off against income
under other head of income except

a. Speculation losses,
b. Capital losses and losses from owning and maintaining race horses.
c. Further, loss under the head ‘business or Profession’ cannot be set-off against
income under the head ‘Salaries’. However, set off of business loss against any
Other head of income is allowed.
d. Speculation losses: These losses can be set-off only against speculation profits.

e. Short-term capital losses: These can be set-off against (a) short-term

capital gains and (b) long-term capital gains only.

f. Long-term capital losses: these can be set-off against long-term capital

gains only.

Carry-forward and Set-off of Losses:

Where loss cannot be set off either under the same head or under different heads
because of inadequacy or absence of income in the same year ,it may be carried
forward and set off against the income of subsequent years
The following losses can be carried forward to be set-off in subsequent years if they cannot
be set-off fully in the year in which they occurred:

1. Loss of house property: It can be carried forward for 8 years and it can be set-off only
against income from house property.

2. Losses of non-speculation business or profession: They can be carried forward for 8

years and can be set-off against any business income. They can be set-off against
speculation profit also. The business loss can be carried forward provided the
return of income is filed within the due date of filing the return.
3. Losses of speculation business: They can be carried forward for 4 years and can be
set-off against speculation profits only.

4. Short-term capital losses: They can be carried forward for 8 years and can be set-off
against capital gains only, whether short-term or long-term.

5. Long-term capital losses: They can be carried forward for 8 years and can be set-off
against long-term capital gains only.

6. Loss from the activity of owning and maintaining race horses: It can be carried
forward for 4 years and can be set-off only against income from the same source.

7. Losses of firms: The firm can carried forward and set-off its losses as discussed under
(i) to (vi). However, a partner cannot set-off his share of loss in the firm against his
incomes.

8. Unabsorbed depreciation is eligible for set off against any income other than salary
income