Set-off and carry forward of losses

Sr. No.	Section	Type of Loss	Set off Against Income		Can be carried forward for
Sr. No.	Section	Type of Loss	In same Assessment Year	In subsequent Assessment Years	Can be carried forward for
(1)	(2)	(3)	(4)	(5)	(6)
1.	72	Business or Profession (Non-speculation other than depreciation)	Business Income Head; or any other head except salaries [Sec. 71(2A)]	Business Income Head (Note 1)	8 years
2.	32	Depreciation	As above	Business Income Head or any other head (Note 2)	Indefinitely
3.	73	Business (Speculation)	Speculation Profit	Speculation Profit	4 years with effect from Assessment Year 2006-07 (8 years up to assessment year 2005-06)
4.	70/74	Short-term capital loss	Capital gains	Capital gains	8 years
	70/74	Long-term capital loss	Long-term capital gain	Long-term capital gains	8 years
5.	74A	Running and maintaining race horses	Such income only	Such income only	4 years
6.	71	Other sources	Other sources or any other head	No carry forward	N. A.
7.	71B	House Property: a. Let out property b. Self-occupied Property (On account of interest on borrowed capital)	Income from House property head or any other head As above	Income from House property As above	8 years 8 years
8.	72A/ 72AA/ 72AB	In case of amalgamation/demerger	—
9.	73A	Losses by specified Businesses (Note 5)	—	Business income of specified business	Indefinitely

NOTES:

Unabsorbed business losses can be carried forward and set-off against profits from any business from A.Y. 2000-01. There is no need to continue the same business in which the loss was incurred.
Depreciation can be carried forward and set off against the profits from any business in the succeeding assessment year up to A.Y. 2001-02. The business in which the loss was incurred need not be continued in that year.
The effect of depreciation, business loss and investment allowance should be given in the following order:

Current year’s Depreciation; • Unabsorbed Business loss; • Unabsorbed Depreciation; • Unabsorbed Investment Allowance.

A return of loss is required to be furnished for determining the carry forward of such losses, by the due date prescribed for different assessees u/s. 139(1) of the Act. (S. 80). This condition is however not required to be fulfilled for claiming losses under house property and unabsorbed depreciation.
Section 35AD has been inserted w.e.f. 1-4-2010. Specified business has been defined u/s. 35AD. In order to remove any ambiguity, section 35AD has been amended by Finance Act, 2011 to remove the word “new” in case of hotels and hospitals. With this, the loss incurred in any specified business shall be eligible to be set-off against profit of any other specified business whether or not the latter is eligible for deduction u/s. 35AD. Finance Act, 2016 has amended section 80 to provide that loss will be allowed to be set-off only if return is filed by the due date of filing of the return of income.
In case of conversion of company into LLP, the accumulated loss and unabsorbed depreciation of the company shall be allowed to be set-off and carried forward by the new LLP.
Other sections:

Section 73 amended by Finance (No. 2) Act, 2014 w.e.f. 1-4-2015 whereby for the words “the principal business of which is the business of banking”, the words “the principal business of which is the business of trading in shares or banking” has been substituted.

Section 78 : Sub-section (1) : In case of change in the constitution of the firm, the amount of proportionate loss of the retired or deceased partner which exceeds his share of profits shall not be allowed to be carried forward in the hands of the firm.

Sub-section (2) : Where any person carrying on business or profession is succeeded by another person otherwise than by inheritance, the benefit of carry forward of loss would not be available to the successor.

Section 79 : (a) In case of a company (not being a company in which public are substantially interested), where there is a change in the shareholding of the company, the loss shall be allowed to be carried forward only if beneficial owners of the shares entitled to 51% voting power are the same on the last day of the year in which loss is incurred and the relevant previous year.

(b) In case of start-up company (as referred in section 80-IAC), where there is a change in the shareholding of the company, the loss, limited to first seven years of company, shall be allowed to be carried forward only if beneficial owners of shares are same as on the last day of the year in which loss is incurred and the relevant previous year. (W.e.f. AY 2018-19 this Section is not applicable to a company where change in shareholding is pursuant to a resolution plan approved under Insolvency and Bankruptcy Code 2016 after affording reasonable opportunity of being heard to the Jurisdictional Principal Commissioner or Commissioner.)