Section 108, Income-tax Act 2025: Set off of losses under same head of income

What changed when Sections 70 to 80 became Chapter VII?

The section numbers changed; the rules did not. Everything about set-off and carry-forward that sat in Sections 70 to 80 of the Income-tax Act 1961 now lives in Chapter VII of the 2025 Act, titled "Set off, or carry forward and set off of losses", running from Section 108 to Section 121. The ₹2 lakh house-property cap, the 8-year and 4-year windows, the bar on setting a business loss against salary: all carried over in substance, not softened or removed.

What moved is the address, plus two cross-references worth holding on to. The return-filing condition that keeps a carry-forward alive now points to Section 263 (the old Section 139), and the late-filing fee that follows a missed deadline sits in Section 428 (the old Section 234F). The table shows where each old section landed.

Section numbers cross-checked against the Income-tax Act 2025 section navigator on incometaxindia.gov.in and against published copies of the enacted Act.†

The order: same head first, then other heads, then carry forward

Set-off runs in a fixed sequence, and skipping a step is not allowed. Losses are used in three stages, in order. Stage one is intra-head set-off under Section 108: a loss from one source cancels income from another source under the same head, so a loss in one business wipes out profit in another, and a loss on one let-out flat reduces the rent profit on a second. Stage two is inter-head set-off under Section 109: only after the same-head adjustment is done can a leftover loss reach across to your other heads, say a house-property loss reducing your salary. Stage three is carry-forward: whatever no current income can absorb rolls into future years.

The order matters because you cannot volunteer a loss for carry-forward while this year's income could still absorb it. If the income to set a loss against exists now, the law makes you use it now. That is usually in your favour, but it can strand an allowance, as the capital-loss example below shows, where a compulsory set-off eats an exemption you would rather have kept.

Which loss can wipe out which income

The general rule is generous and the exceptions are where the tax is won or lost. As a starting point, a loss under any head sets off against income under the same head, and then against income under other heads. Four ring-fences override that generosity: capital losses, speculation losses, race-horse losses and specified-business losses each stay locked to their own kind of income, and a business loss can never reach salary.

No loss of any kind can be set off against winnings from lotteries, game shows, online games, card games, betting or gambling: that income is always taxed in full. And a loss from a source whose income is exempt, such as agriculture, cannot be set against taxable income at all.

House-property loss: the ₹2 lakh ceiling and the 8-year carry-forward

A house-property loss is the one loss most salaried people actually have, and it comes with a hard yearly ceiling. After a property's rent is netted against its municipal tax, the 30% standard deduction and home-loan interest, a heavy interest bill often leaves a loss. Within the head that loss first cancels the profit on any other property you own. What remains can be set against your other income, salary included, but only up to ₹2,00,000 in a tax year (Section 109).

Whatever exceeds ₹2,00,000 is not gone, but it waits. The unabsorbed amount carries forward 8 years under Section 110, and in those years it can only be set against house-property income, never again against salary. A self-occupied home, whose annual value is nil, routinely produces exactly this: interest up to ₹2,00,000 becomes a loss, that ₹2,00,000 reduces your salary this year, and any excess carries forward. The interest deduction itself lives in Section 22 (the old Section 24).

Under the default new regime this set-off closes entirely: a house-property loss cannot reduce any other head and does not carry forward. Section 22 covers the regime split in full.

Business and F&O losses: never against salary, eight years to use them

A business or professional loss is flexible within limits. In the same year it sets off against any other business income (speculation profit included), and then against any other head except one: it can never reduce income taxed as salary (Section 109). So a consultant with a loss-making side venture cannot shave it off her salary, though she can set it against rent or interest income.

Unabsorbed business loss carries forward 8 years under Section 112, usable only against future business income. The F&O question turns on a distinction that decides both the ring-fence and the carry-forward window:

• Futures and options on a recognised exchange are non-speculative business. An F&O loss behaves like any business loss: 8-year carry-forward, set off against business income, never against salary. Its turnover for the audit threshold is computed the F&O way, which the calculator below works out.
• Intraday equity trading is speculation business. A speculation loss is walled off: it sets off only against speculation profit, in the current year or across the next 4 years under Section 113, and never against F&O profit, other business income or any other head.
• A Section 35AD specified business (cold chains, warehousing, certain infrastructure) is walled off the other way: its loss sets off only against another specified business, but carries forward with no time limit under Section 114.

Capital losses: short-term is flexible, long-term is trapped

Capital losses never leave the capital-gains box: they cannot touch salary, business income, rent or interest under any circumstances. Inside the box, the two kinds behave differently. A short-term capital loss is the flexible one, setting off against both short-term and long-term capital gains. A long-term capital loss is trapped: it can only be set against long-term capital gains.

This asymmetry has a sharp edge. Carry a ₹2,00,000 long-term equity loss and book a ₹1,50,000 short-term gain the same year, and the loss cannot touch the gain: you pay 20% on the full ₹1,50,000 while the loss waits for a future long-term gain. Either kind of capital loss carries forward 8 years under Section 111, keeping its short or long character. Worked example 2 runs exactly this trap.

The special rates on listed equity live elsewhere: 20% short-term (Section 196, old 111A) and 12.5% long-term above the ₹1.25 lakh exemption (Section 198, old 112A). The set-off rules here decide how much gain is left to tax at those rates.†

The losses that go nowhere: race horses, winnings and crypto

Three kinds of loss barely move, and one income type refuses every loss thrown at it.

• Owning and maintaining race horses: a loss here sets off only against income from the same activity, and carries forward just 4 years under Section 115. After speculation, it is the narrowest carry-forward in the Act.
• Virtual digital assets (crypto, NFTs): a loss on one coin cannot be set against a gain on another, let alone against any other income, and it cannot be carried forward at all. It simply dies with the tax year. This is Section 194 (the old Section 115BBH), the harshest ring-fence in the law.
• Winnings from lotteries, game shows, online games, betting and gambling: you cannot set any loss against this income, and it is taxed in full at 30%. There is no deductible "loss" from the activity either.
• Exempt sources: if a source's income is exempt (agricultural income is the common one), its loss cannot be set against any taxable income.

How long each loss lives

The carry-forward window depends on the kind of loss, and two of them ignore the filing deadline. The table gives the exact rule for each; the chart above scales the windows against the common 8-year limit.

House-property loss and unabsorbed depreciation are the two that survive a belated return. Every other loss here is forfeited the moment you file after the due date.

The filing deadline that decides whether a loss survives

This is the rule that quietly costs traders and investors the most money. To carry a loss forward you must file your return of income by the due date under Section 263 (the old Section 139(1)). File even one day late, as a belated return, and the right to carry forward business, speculation, specified-business and capital losses is gone for good. The loss is not delayed; it is extinguished. Section 121 is the 2025-Act home of this condition (the old Section 80), read with the return deadlines in Section 263.

Two losses escape the rule and carry forward from a belated return anyway: a house-property loss and unabsorbed depreciation. For everyone else the requirement is unforgiving. A ₹4,00,000 F&O loss meant to shelter next year's profit is worth up to ₹1,24,800 in future tax at the 30% slab, and a late filing throws that away while the late-filing fee under Section 428 is at most ₹5,000. The fee is rarely the real cost of filing late.

Unabsorbed depreciation: the loss that never expires

Depreciation that your business income was too small to absorb is not a normal business loss, and it plays by kinder rules. It carries forward indefinitely, with no 8-year limit, and it survives a belated return. In later years it sets off against income under any head except salary, which is broader than the reach of a carried-forward business loss.

When several kinds of shelter compete in one year, the law fixes the order. Current-year depreciation and current scientific-research and family-planning capital expenditure come off first; then brought-forward business loss, which has the ticking 8-year clock; then unabsorbed depreciation, which does not. Spending the expiring loss before the non-expiring depreciation is deliberate, and it is why the order is worth knowing.

What the new regime does to your losses

The default new regime (Section 202, the old Section 115BAC) changes one set-off rule that reaches almost every homeowner: a house-property loss cannot be set off against any other head, and cannot be carried forward. The ₹2,00,000 salary set-off the old regime allows simply does not exist. For a borrower on a self-occupied home, the interest that would have sheltered ₹2 lakh of salary shelters nothing.

Ordinary business and capital losses are not blocked by the regime choice: they set off and carry forward as normal on either regime. What the new regime removes is the deductions that create some losses in the first place (the Section 22 self-occupied interest, the Chapter VIII basket), not the machinery of Chapter VII itself. If a home loan is central to your tax, that single house-property difference is often the whole old-versus-new decision, which the income-tax calculator below quantifies.

How to keep a loss from going to waste

One number anchors the discipline: at the 30% slab, every ₹1,00,000 of loss you carry forward and later use is worth ₹31,200 in tax saved with cess. A ₹5,00,000 business loss preserved by an on-time return is a ₹1,56,000 asset. Treat the due date, not the 31 December belated-return window, as the real deadline whenever a loss is on the table.

A carried-forward loss is a tax asset, and the ways to lose it are all avoidable:

• File by the due date, every year you have a loss. This is the single highest-value habit here: an on-time return preserves every carry-forward, a belated one forfeits business, F&O, speculation and capital losses. On a ₹4,00,000 F&O loss at the 30% slab, that is up to ₹1,24,800 of future tax protected by a deadline that costs nothing to meet.
• Harvest capital losses before 31 March, matched to their kind. A long-term loss can only meet a long-term gain, so realise long-term losses in a year you also have long-term gains; the short-term loss is the versatile one that covers either.
• Do not expect a house-property loss to save more than ₹2,00,000 of other income in a year. If interest runs well above that, the excess only ever returns against future rental profit, so a second let-out property that throws off taxable rent can be what finally absorbs it.
• Watch the order when an allowance is at stake. Because set-off is compulsory this year before carry-forward, a loss can be forced against income you would rather have taxed at a special low rate. Model the year before you realise a discretionary loss.

Worked examples

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