DEFINITION

The adjustments of negative income with

positive incomes is known as set-off of
losses. If in a particular year the negative
income is more than positive income, rest
of the negative income may be set-off in
subsequent years, such is known as carry
forward of losses.
 SET-OFF OF LOSSES
• (1.)Set-off of loss from one source
against income from another source
under the same head of income(sec.
70):-
 Acc. To Sec.70 if the net result in
respect of any source falling under any
head of income is loss, the assessee is
entitled to have the amount of such loss
(excluding long term capital loss) set-off
against his income from any other
source under the same head. This is
also known as intra-head adjustments.
 Except the following losses, other losses
can be set-off against the other income of
the same head—

• (a) Long term capital loss can be set-off

against long term capital gains.
• (b) Speculation losses can be set-off against
the profits from speculation business only.
• (c) Losses of race horses can be set-off
against the profits of race horses.
• (d) Losses of lottery, cross-word puzzles,
gambling and betting cannot be set-off
against any income.
• (e) Loss from an exempted source of income
cannot be set-off against any taxable
income
• (2.)Set off of loss of one head of income
against the income from other heads-
•
 If the loss could not be set-off fully
or partially from the same head (Section
70), then the remaining losses can be set-
off from other heads of incomes according
to Section 71 of Income Tax Act .
 Except the following losses, the loss under one
head can be set off against the income of other
heads-

• (i) Losses mentioned at (1) above.

• (ii) Loss under the head ‘capital
gains’ cannot be set-off against the
income from any other head.
• (iii) Loss under the head ‘Profits of
Business or Profession’ cannot be
set-off against the, taxable income
under the head ‘Salaries’.
•
CARRY FORWARD AND SET OFF
OF LOSSES
• The following rules apply regarding carry forward
and set of off losses-
•
 Loss Method of Set off Time
1. Business Against Income from limit
8 years
2. Loss
Speculation Business or Profits 4 years
Speculation
3 lossesterm Profession
Short only against capital 8 years
Only
capital loss gains
 To be cont………
Loss Method of Set off Time
4. Long term Only against long term limit
8 years
5. capital loss
Loss from capital gains income
Only against 8 years
6. houseof race
Loss from house
Only againstproperty
income 4 years
7. property
horses
Loss of Firm from race horses
Firm itself will set off As per
rules.
 Note-
• (1.) From the assessment year 2000-01 the
losses of discontinued business can also be
set off provided the prescribed period of 8/4
years have not passed from the year in which
the loss was computed.
• (2.) The provisions regarding carry forward and
set off of loss from assessment year 1999-
2000.
• (3.) Unabsorbed depreciation of any
assessment year or years preceding to the
assessment year 2002-2003 can be set off
against any source of income in assessment
year 2002-2003. The balance of unabsorbed
depreciation can be set off in the following
assessment years against any other head of
income (but excluding the income under the
head salaries), provided there is no income or
• (5.) From the assessment year 2001-
02 the unabsorbed depreciation of
discontinued business can also be
set off.