Set-off of Losses:-

Set-off of losses refers to the adjustment of losses against the profits or income for that specific year. Losses that cannot be set off against the income of the same year can be carried forward to the subsequent years for the set off against the income of coming years. A set-off can be of two types;

•    Inter-Head Set-Off
•    Intra-Head Set-Off
•    Intra-head Set-Off

The losses from one source of income can be set off against the source income or under the same head of income. For example, the losses of one business can be set off against the profits of another business. It is to be noted that here Business of one source and the business of another source is under the common head of income i.e. Business.

Exceptions to An Intra-Head Set-Off:-

The following are some of the exceptions to Intra-head set-off;

•    Losses arising from a speculative business can only be set off against speculative profits. The adjustment of speculative business losses with income from any other business or profession cannot be made.
•    Losses incurred due to owing and maintenance of horse races can be set off against the profit from business activity of owning and maintenance of horse races.
•    Long term capital losses can be adjusted towards long term capital gains. However, short-term losses cannot be set off against both short-term as well as long-term capital gain.
•    Losses that are incurred from specified business can be set off only against the profits earned from the specified business. Losses from any business or profession can be set off against profits from such specified business.

Inter-Head Set-Off:-

The intra-head adjustments can be set off remaining the losses towards other heads' income. For example, loss arising from the sale of house property can be set off against the income earned under the head 'Salary'.

Some of the instances of an inter-head set off of losses are provided below:

•    The loss from house property can be set off against any under heads of Income
•    Losses of business except speculative business can be set off against under any head of income excluding Salary

It is also to be noted that some of the losses cannot be set off against any of the income heads which are as follows;

•    Specified business loss
•    Speculative Business loss
•    Capital Losses
•    Losses arising due to owning and maintaining horse races

Carry Forward of Losses:-

After making permissible adjustments under intra-head and inter-head set off, there may be still some unadjusted losses. The aforesaid unadjusted losses can be carried forward for upcoming years of adjustment against the income of the future years. The rules regarding carrying forward are to some extent different from heads of income.

Losses from House Property:-

The following are some of the losses from house property that can be carried forward;

•    The losses can be carried forward for the upcoming 8 assessment years from the assessment year in which the loss actually incurred 
•    Losses can be adjusted against the incomes from house property only
•    Non-speculative Business (Regular Business) Loss
•    It can be carried forward for the upcoming 8 assessment years from the assessment year in which the loss actually incurred 
•    Losses can be adjusted against the incomes from Businesses and Profession only
•    Losses cannot be set off or carried forward in case of the return is not submitted within the actual due date
•     It is not necessary for the continuation of business at the time of set off in an upcoming year

Speculative Business Loss:-

The following are some of the business losses which can be carried forward;

•    Losses can be carried forward up to the upcoming 4 assessment years from the assessment year in which the loss actually incurred 
•    Losses can be set off  against income from speculative business only
•    Losses cannot be carried forward in case of the return is not submitted within the actual due date

Specified Business Loss under Section 35AD:-

The following are some of the Business Losses under Section 35AD of the Income Tax Act, 1961 which can be carried forward;
•    Under Section 35AD, No time limit is specified to carry forward the from the specified business 
•    It is not essential that the business is continued at the time of set off in the upcoming years
•    Losses cannot be carried forward in case the return is not submitted within the actual due date
•    Under Section 35AD, Losses can be adjusted against the incomes from specified businesses under 35AD 

Capital Losses:-

The following are some of the capital losses which can be carried forward;

•    Losses can be carried forward for the upcoming 8 assessment years from the assessment year in which the loss is actually incurred 
•    Long-term capital losses can only be set off against long-term capital gains.
•    Short-term capital losses can be adjusted against both short-term capital gains as well as long-term capital gains
•    Losses cannot be carried forward in case the return is not submitted within the actual due date

Losses from Owning and Maintaining Race-Horses:-

The following are the terms and conditions for adjustment of losses from owning and maintaining race-horse As;

•    Can be carried forward up to the next 4 assessment years from the assessment year in which the loss was incurred
•    Cannot be carried forward if the return is not filed within the original due date
•    Can only be set off against income from owning and maintaining race-horses only

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