Guide to Set Off & Carry Forward of Losses under each

head of Income
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This article focuses on provisions of The Income Tax Act, 1961 and rules made there
under relating to Set Off and Carry Forward of Losses. This is a complete guide to set
off and carry forward the losses including the set off of losses from business and
profession from presumptive income.

A. There are two types of adjustments under set off of losses:

1. Intra Head Adjustment (section 70) – It means loss from one source of income can
be set off against income from another source but in the same head of income.

2. Inter Head Adjustment (section 71) – It means loss under one head of income can
be set off against income from another head of income but in same previous year*.

Exceptions :

1. Speculative business loss can be set off against speculative business income only.

2. Specified business loss (u/s 35AD) can be set off against specified business income
only.

3. Long term capital loss can be set off against long term capital gain only.

4. Loss from owing & maintaining race horses can be set off against income from owing &
maintaining race horses.

5. Short term capital loss can be set off against Short term capital gain and Long term
capital gain only.

6. Loss from business cannot be set off against salary income.

* In case of carry forward losses Inter Head adjustment Not Allowed.

B. Set Off & Carry Forward of Losses :

Types of Intra Head Inter Head Carry Brought Time Man

Losses Adjus tment Adju For Forward Limit to datory
stment warded Losses to carry filing
be Set Off forward of
against return
of
income

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 Loss from Allowed Allowed, Allowed Income 8 Years No
House upto from House
Property Maximum Property
of Rs.
2,00,000
from AY
2018-19

Loss from Only against Not Allowed Income 4 Years Yes

Speculative Speculative Allowed from
Business business Speculative
income Business

Loss from Only against Not Allowed Income Unlimited Yes

Specified Specified Allowed from
Business business Specified
income Business

Other Allowed Allowed, Allowed Income Yes

Business except from
Losses from Salary Normal
Income Business

Short Term Only against Not Allowed STCG & 8 Years Yes
Capital STCG & Allowed LTCG
Loss LTCG

Long Term Only against Not Allowed LTCG 8 Years Yes

Capital LTCG Allowed
Loss

Loss from Only against Not Allowed Income 4 Years Yes

Owing & income from Allowed from Owing
Maintaining Owing & &
Race Maintaining Maintaining
Horses Race Horses Race
Horses

Other Loss Allowed Allowed Not N/A N/A N/A

under Allowed
‘Other
Sources’

Loss from Loss from Salary Not Possible

Salary

C. Timely filing of Income Tax Return

In order to carry forward the losses of current assessment year it is mandatory to file
Income Tax Return within the timelines specified u/s 139(1) of the Act.

However, the provisions apply only in case of losses of current assessment year and not
on the brought forward losses of previous assessment years which are still unutilized and
required to be carried forwarded. Also, the losses are allowed to be set off against the

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income even if the return is filed after due date.

For Example : If a person has Losses of Rs. 1,00,000 brought forwarded from AY 2017-
18 and incur losses of Rs. 6,00,000 in current AY 2019-20 and he filed his return of
income after the due date of return filing then he is allowed to carry forward Rs. 1,00,000
pertaining to loss of AY 2017-18 but he is not allowed to carry forward the current year
loss of Rs. 6,00,000 however, he can set off this loss from the eligible income in the
current AY only.

Exception :

House Property loss & Unabsorbed Depreciation can be carry forwarded even if return
filed after due date.

D. Brought Forward Loss & Presumptive Income

In case a person has brought forwarded losses from the business or profession and in the
current assessment year the person files the return of income declaring his income under
presumptive scheme specified u/s 44AD or 44ADA or 44AE then he is allowed to set off
the brought forward losses from the presumptive income.

In such a case the person is required to file return of income under form ITR-3 declaring
his income on presumptive basis under table 61 to 64 of “Part A P & L” of the form and
declaring the brought forward losses under “Schedule-CYLA”.

E. Carry Forward of Losses in case of Amalgamation/ Demerger

Particular Amalgamation Demerger Conversion of Firm Conversion of

/ Proprietary into Unlisted Co.
Company into LLP

Accumulated Amalgamating Demerged Firm / Proprietary Unlisted Co.

Business Co. Co.
Loss

Can be carry Amalgamated Resulting Successor Co. LLP

forward by Co. Co.

Time Limit to Fresh 8 years Remaining Fresh 8 years Fresh 8 years

carry forward 8 years

Notes :

1. Only business losses (except speculative business loss) can be carry forwarded by
successor.

2. Unabsorbed Depreciation can be carry forwarded by Amalgamating Co./ Resulting Co./

Successor Co./ LLP for unlimited period.

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3. The Carry forward of losses by successors are subjected to some conditions specified
under the Act.

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