Indian Company Master Data Made Simple

Set Off of Losses

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Quick Summary

Set Off of Losses allows taxpayers to adjust losses from one income source against profits from another source, reducing net taxable income. Rules govern intra-head and inter-head set-off.

Set Off of Losses is the process of adjusting losses incurred under one source of income against profits from another source. The Income Tax Act specifies rules for setting off losses within the same head (intra-head) and between different heads (inter-head) of income.

Types of Set Off

1. Intra-Head Set Off (Same Head)

Loss from one source under a head can be set off against income from another source under the same head:

  • Loss from one house property against income from another house property
  • Loss from one business against profits from another business
  • Short-term capital loss against long-term capital gains (and vice versa)
  • Loss from one speculative business against profit from another speculative business

2. Inter-Head Set Off (Different Heads)

After intra-head set off, remaining losses can be set off against income from other heads, subject to restrictions:

Type of Loss Can be set off against Cannot be set off against
House Property Loss Any other head (up to ₹2 lakh) -
Business Loss (Non-speculative) Any other head Salary Income
Capital Loss Only Capital Gains Any other head
Speculative Business Loss Only Speculative Business Income Any other head
Loss from Owning Race Horses Only income from Owning Race Horses Any other head

Special Restrictions

  • Long-Term Capital Loss: Can only be set off against Long-Term Capital Gains
  • Short-Term Capital Loss: Can be set off against both STCG and LTCG
  • Speculative Loss: Can only be set off against speculative profits
  • House Property Loss: Can be set off against other heads up to ₹2 lakh; excess carried forward
  • Business Loss: Cannot be set off against salary income

Order of Set Off

  1. First, set off losses within the same head (intra-head)
  2. Then, set off remaining losses against other heads (inter-head)
  3. Finally, any remaining loss is carried forward to future years

Key Points

  • Loss from one source adjusted against another
  • Intra-head: Within same income head
  • Inter-head: Between different heads
  • Capital loss only against capital gains
  • Speculative loss only against speculative income
  • House property loss can offset other income (₹2 lakh limit)

Frequently Asked Questions

Can I set off my business loss against salary income?

Can short-term capital loss be set off against long-term capital gains?

What is the limit for setting off house property loss?

Can speculative trading losses be set off against regular business income?