Be alert before filing your tax return!
My student, Ankit, has always been a serious during his college days – MBA in Finance working in a Fintech company He is always well-organized in filing his ITR before the due date. But this financial year he is looking bit concerned.
One day he was telling me that when he has logged into his income tax portal, he became confused to see all details prefilled therein with interest on home loan, loss under the head capital gain.
He was asking me impatiently, “how can I adjust these losses? Or are they lapsed?”
After listening to his problem, I laughed at Ankit and told try to remember the classes where I discussed this chapter in detail but you can forget it since it was long back. After a meaningful discussion for some time, he became elated and went back home with a clear understanding of set off provisions knowing that a loss in this financial year can become a tax shield in coming financial years.
For young executive like Ankit and all the students who are undergoing Finance Course must understand this chapter where tax insight brings financial gain.
What is set Off and Carry Forward
Set off means adjustment of losses against the profit or income from same or another source. Carry forward means if losses cannot be set off in the same year—it can be adjusted in future years.
Types of Set Off
Inter Source Adjustment (Intra-Head Set Off)
Losses are adjusted within the same head of income.
Example:
- Long-term capital loss can be set off against long-term capital gains only.
- Short-term capital loss can be set off against long-term capital gain.
- Loss from one business can be set off against profit from another business.
Exceptions:
- Long-term capital loss cannot be set of against short term capital gain.
- Speculative business loss can only be set off against speculative business profit.
Inter Head Adjustment
Loss under one head of income can be set off against income under another head of income.
Example:
- Loss from house property can be set off against income from salary.
- Loss from house property can be set off against business income.
Exceptions: Business loss cannot be set off against income from salary.
- Set off and carry forward Losses in subsequent years
| Type of Loss | Conditions apply | Set off against | Carry forward period |
| Speculative Business Loss | Return filed on time | Speculative Business Profit | 4 years |
| Business Loss (non- speculation) | Return filed on time | Business income | 8 years |
| Loss from House Property | No time limit | Any income (up to Rs. 2,00,000), else carry forward | 8 years |
| Capital Loss | Return filed on time | Capital gain | 8 years |
| Loss from activity of owning and maintaining race horses | Return filed on time | Income from activity of owning and maintaining race horses | 4 years |
- New Rax Rule (NTR) vs. Old Tax Rule (OTR)– Know it!
Section 115BAC – Some deductions and exemptions are not available.
Example: Loss due to interest for home loan on self-occupied property is not allowed.
Example- Ankit has home loan and interest accrued amount is Rs. 2,70,000.
Under the old tax rule Ankit can adjust up to only Rs. 2,00,000 only and set off against his salary income.
Under the new tax rule Ankit cannot set off his loss from self-occupied house due to interest on loan against his salary income.
- Case study: Ankit’s tax riddle
Let’s look at Income Statement of Ankit for FY 2024-25
| Details | Amount (Rupees) |
| Income from Salary | 9,00,000 |
| Income from House Property (Interest on SOP) | (2,70,000) |
| PGBP (Profit and Gains of Business and Profession) | 1,50,000 |
| Long term Capital Gain (LTCG) – Shares | 1,20,000 |
| Short term capital loss (STCL) -Shares | (80,000) |
Old Tax Rule (OTR)
Set off of loss under the head House Property is allowed up to Rs. 2,00,000 and balance of Rs. 70,000 can be carried forward up to 8 years.
Short term capital loss (STCL) of Rs. 80,000 is adjusted against Long term Capital Gain (LTCG) of Rs. 1,20,000 and balance LTCG of Rs. 40,000 is not taxable since LTCG under Section 112A is exempted up to Rs. 1,25,000.
Computation under Old Tax Rule: FY 2024-25
| Heads of Income | Income (Rupees) | Set off (Rupees) | Net amount (Rupees) |
| Income from Salary | 9,00,000 | (2,00,000) | 7,00,000 |
| PGBP | 1,50,000 | 1,50,000 | |
| Capital Gain | 1,20,000 | (80,000_ | Nil |
| Gross Total Income (GTI) | 8,50,000 | ||
| Less: Standard deduction | (50,000) | (50,000) | |
| Taxable Income | 8,00,000 | ||
| Tax Payable | 75,400 |
Computation under New Tax Rule (Section 115BAC): FY 2024-25
Limitations:
- Interest for home loan on SOP is not allowed as a deduction.
- Set off of losses due to related such deduction not allowed.
| Heads of Income | Income (Rupees) | Set off (Rupees) | Net amount (Rupees) |
| Income from Salary | 9,00,000 | Not allowed | 9,00,000 |
| PGBP | 1,50,000 | 1,50,000 | |
| Capital Gain | 1,20,000 | (80,000_ | Nil |
| Gross Total Income (GTI) | 10,50,000 | ||
| Less: Standard deduction | (75,000) | (75,000) | |
| Taxable Income | 9,75,000 | ||
| Tax Payable | 49,400 |
Comparative Study (OTR vs NTR)
| Details | OTR | NTR |
| Set off of House property Loss | Up to Rs 2,00,000 | Not allowed |
| Set off of Capital loss | Allowed | Allowed |
| Standard deduction | Rs. 50,000 | Rs. 75,000 |
| Taxable Income | Rs. 8,00,000 | Rs. 9,75,000 |
| Tax payable | Rs. 75,400 | Rs. 49,400 |
| Benefit | New Tax Rule (lower tax) |
Ankit finally filed his ITR with satisfaction that he has been able to save tax of Rs26,000 as he understood what tax planning actually is!
Pay attention:
- File ITR timely to carry forward losses
- Do understand speculative and non-speculative business losses
- Deductions and exemptions available
- Due date of ITR
Golden rules of Set off and carry forward
- Inter-source set-off first followed by inter-head set off.
- Timely filing of ITR.
- Know exceptions to set off in detail.
- Special focus on house property loss on SOP
- Carry forward period
Closing Memo
Taxation is not just about calculation of tax – it’s about understanding of income and losses. How these losses can be used as tools to optimize future taxes because this year loss could be gain of coming year within the framework of Law.
Thank you, Dr. Dutta Sir, for this clear and engaging article on set-off and carry forward of losses. The way you’ve broken down the rules with real examples (like Ambika’s scenario) makes what is often a confusing topic much easier to follow. The comparison between the old and new tax regimes and the step-by-step treatment of various kinds of losses was especially helpful.
I appreciated the “5 Golden Rules” at the end — those are very practical takeaways I can refer to when doing my returns.
I hope you continue writing more such articles that bridge technical tax law with real life. Thanks again for demystifying this topic!
Thank you. keep going.
This article beautifully simplifies one of the most confusing areas of taxation — set-off and carry forward of losses. The real-life example of Ambika and the clear comparison between the old and new tax regimes made the concept easy to grasp. FinTaxLens truly brings clarity to complex tax topics — a great resource for both students and professionals alike.
keep going.
Thank you, Dr. Sujit Dutta Sir, for this wonderfully written article. You’ve managed to simplify a topic that usually confuses most taxpayers. The use of real examples like Ambika’s made the explanations so much clearer.
I really liked the comparison between the old and new regimes and how you walked through each type of loss in such a practical way. The “5 Golden Rules” at the end were a great summary — concise, useful, and easy to remember.
Appreciate your effort in turning technical tax details into something easy to grasp. Looking forward to reading more of your insights!
Thank you@Tamonash. Kepp updated
This was a very informative post. The explanation of how different types of losses can be set off and carried forward under the Income Tax Act was clear and easy to understand. It really helps in understanding the practical implications for taxpayers and businesses. Looking forward to more such insightful articles.
keep update yourself.