Losses are first set off within the same head (intra-head, Section 70), then across heads (inter-head, Section 71), and any unabsorbed loss is carried forward to future years subject to limits. Most carry-forwards require the return to be filed by the due date under Section 139(1).
The order of set-off
Set-off follows a sequence: intra-head first (a loss against income under the same head, Section 70), then inter-head (a remaining loss against income under another head, Section 71), and finally carry-forward of what cannot be absorbed. Some losses can only be set off against specific income.
Carry-forward periods by loss type
| Loss | Set off against | Carry forward |
|---|---|---|
| House property loss | Any head (capped Rs.2 lakh inter-head) | 8 years (vs house property income) |
| Non-speculative business loss | Any head except salary | 8 years (vs business income) |
| Speculation loss | Speculation income only | 4 years |
| Short-term capital loss | STCG or LTCG | 8 years |
| Long-term capital loss | LTCG only | 8 years |
| Unabsorbed depreciation | Any head except salary | Indefinite |
The return-filing condition
Carry-forward of business loss, capital loss, speculation loss and specified-business loss is allowed only if the return is filed by the Section 139(1) due date. The exceptions are house property loss and unabsorbed depreciation, which can be carried forward even with a belated return. So timely filing protects valuable loss carry-forwards.
Practical points
- Inter-head set-off of house property loss is capped at Rs.2 lakh per year; the balance carries forward.
- Capital losses cannot be set off against any income other than capital gains.
- Closely-held company and LLP carry-forwards face continuity-of-ownership/partner conditions (Sections 79, 78).
- File on time — see ITR due dates.
Key takeaways
- Set off intra-head (70), then inter-head (71), then carry forward.
- Capital losses only against capital gains; LTCL only against LTCG.
- Business/capital loss carry-forward needs a timely return.
- House property loss and unabsorbed depreciation are the exceptions.