Loss Set-off & Carry Forward — FAQs

Turn Tax Losses into Future Gains – FAQs on Loss Set-off & Carry Forward (FY 2024-25)

Losses are an inevitable part of business, investments and property. The Income-tax Act provides orderly rules to set off (adjust) current year losses against other heads of income and to carry forward unabsorbed losses to future years subject to conditions. These FAQs explain types of losses, inter-head and intra-head set-off, carry-forward periods, special rules, and practical filing points for taxpayers.

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Frequently Asked Questions-Loss Set-off & Carry Forward

Set-off means adjusting a loss against income of the same or other heads in the same assessment year. Carry forward means preserving the unabsorbed loss for adjustment in future assessment years under specified rules.

Losses from House Property can be set off against any other head (subject to limits). Business/profession losses and capital losses have specific inter-head rules: short-term capital loss can be set off against any capital gain (both ST/LT); long-term capital loss can be set off only against long-term capital gains.

Within the same head (e.g., Capital Gains), losses are set off according to priority rules — for example, short-term losses first against short-term gains, etc., before any inter-head adjustments are considered.

Generally, business losses (including speculative business), capital losses and house-property losses (unabsorbed) can be carried forward for 8 assessment years immediately following the year of loss. (Check for any Finance Act 2025 amendments for specific categories.)

If a person opts for presumptive taxation u/s 44AD/44ADA and declares profits as per the provision, business losses are generally not computed in the usual way. If you exit the presumptive scheme, consult the specific section rules — carry-forward treatment may be impacted.

No. Losses belong to the assessee who incurred them. Losses of a firm cannot be set off against a partner’s personal income except as specifically allowed (for example, firm’s share distributed is taxed only when received).

  • STCL (Short-term capital loss): can be set off against STCG and LTCG; carry forward 8 years.
  • LTCL (Long-term capital loss): can be set off only against LTCG; carry forward 8 years.

No. Carry forward of losses (other than loss from house property) is allowed only if return is filed within the due date under section 139(1). Late/belated returns generally forfeit the right to carry forward such losses.

Current year loss from house property (e.g., high home-loan interest) can be set off against other heads up to statutory caps (check current cap rules). Unabsorbed house property loss can be carried forward for 8 years and set off only against income from house property.

Certain changes (like change in shareholding, amalgamation, or conversion) can restrict set-off of carried forward business losses. Specific anti-avoidance conditions may apply — check section-specific provisions on change in ownership / continuity tests.

Non-residents can set off and carry forward losses relating to Indian-source income per the Act, subject to filing and documentation rules. Domestic restrictions and treaty provisions may affect computation.

Yes. Speculative business losses can be set off only against speculative income. They are carry-forwardable for 4 assessment years (special shorter period) as per the Act.

Indexation affects computation of capital gains; losses computed after indexation follow the usual set-off and carry-forward rules (ST/LT distinctions remain binding).

Keep audited accounts (if applicable), profit & loss statements, computation sheets, loan statements, sale/purchase proofs (for capital losses), and copies of filed returns showing losses and schedules. Supporting evidence is crucial during scrutiny.

Use the relevant schedules in the ITR form (e.g., Schedule CFL — Carry Forward of Losses) to declare unabsorbed losses and the year of origin. Correct schedules ensure future set-off is recognised.

  • Time capital asset sales to optimise ST/LT treatment.
  • If possible, file return within due date to preserve carry-forward rights.
  • Use accelerated reviews to crystallise losses in tax-efficient years.
  • For property losses, manage loan interest vs. rent strategy.
  • Consult before restructuring (mergers, demergers, change in shareholding) to avoid losing loss benefits

Pro-Tips (practical)

  • ⚖️ File on time: Missing the original due date can forfeit carry-forward rights.
  • 🗂️ Maintain year-wise loss register: Show year of origin and adjustments.
  • 📊 Plan asset sales: Holding longer for LTCG may convert an ST loss to a less useful position — plan with indexation in mind.
  • 🧾 Audit triggers: If tax audit applies, have schedules reconciled; auditors often validate loss computations.
  • 🔄 Use losses to smooth tax: Use carry-forward strategically in profitable years to reduce peaks in tax liability.

Quick Checklist before filing

  1. Confirm losses and year of origin.
  2. Prepare Schedule CFL and other ITR schedules.
  3. Verify audit requirements and attach reports if applicable.
  4. Ensure return is filed within due date to preserve carry-forward.
  5. Keep supporting documents ready (sale deeds, loan interest statements, audited P&L).

Internal links (do-follow)

Read Loss Set-off & Carry Forward – Income Tax FAQs (FY 2024-25)

Loss Today, Savings Tomorrow – Your Complete Guide to Carrying Forward Tax Losses

Sources

Disclaimer: These FAQs are for general informational purposes only and reflect provisions of the Income-tax Act, 1961 as updated by the Finance Act 2025. They are not professional tax advice. For case-specific guidance, consult the official Income Tax Department publications or a qualified Chartered Accountant.