There are two sides to every coin: profit and loss. Naturally, losses are difficult to accept. Nonetheless, there are some advantages to suffering losses for taxpayers under Indian income tax legislation. This article goes into detail on the legal provisions for set-off and carry-forward of losses.

Section Losses to be carried forward Can be set off against Income Time up to which losses can be carried forward Mandatory to file a return in the year of loss
Unabsorbed depreciation
Any income (other than salary)
No time limit
Loss from House property
Income from house property
8 years
Loss from Normal business
Income from business
8 years
Loss from speculative business
Income from speculative business
4 years
Loss from specified business
Income from specified business
No time limit
Short-term capital loss (STCL)
Short-term capital gain (STCG) and long-term capital gain (LTCG)
8 years
Long-term capital loss (LTCL)
8 years
Loss from owning and maintaining horse races
Income from owning and maintaining horse races
4 years

Set off of Losses

Adjusting losses against that year’s profit or income is known as a set-off of losses. Any losses that are not deducted from income in the same year may be carried over and deducted from income in later years. There are two types of set-offs: intra- and inter-head.

Intra - Set Head Off

Under the same head of income, losses from one source of income might be deducted against earnings from another.

For example: If Business A and Business B are two different sources of income with “Business” serving as their common head of income, then the loss from Business A can be deducted from the profit from Business B.

When an intra-head set-off doesn't occur:

1.Only the profits of a speculative firm will be deducted from any losses incurred. It is impossible to make up for speculative business losses with profits from other ventures or occupations.

2.Only the profit made from owning and caring for racehorses will be deducted from any losses incurred in this endeavour.

3.Only long-term capital gains will be deducted from long-term capital losses. Short-term capital losses, however, can be offset by both long-term and short-term capital gains.

4.Only the profits of specifically designated enterprises will be deducted from losses incurred by those businesses. However, the losses from any other venture or occupation might be deducted from the earnings from

Inter-head Set Off

Following intra-head adjustments, the taxpayers may deduct any residual losses from their other sources of income.

For instance, a loss on real estate might be deducted from a paycheck.

A few additional examples of an inter-head set off of losses are shown below:

Losses incurred from house property can be deducted from earnings under any heading.

All forms of revenue, with the exception of pay income, can be offset by business losses other than those resulting from speculation.

It’s also important to remember that the following losses cannot be deducted from any other

source of income:

       1.Imprudent financial loss

       2.Defined loss to the business

       3.Losses on Capital

       4.Losses incurred in the ownership and upkeep of racehorses

Carry Forward of Losses

There may still be uncorrected losses even after the proper and allowed intra- and inter-head adjustments have been made. In order to make adjustments against the income from past years, these uncorrected losses may be carried forward to subsequent years. Regarding carryover, the regulations vary slightly depending on the income head. 


  • Mergers:

When two businesses merge, their boards of directors authorise the union and ask the shareholders for their consent. For instance, in 1998, the Digital Equipment Corporation and Compaq entered into a merger agreement wherein Compaq acquired the Digital Equipment Corporation. Later, in 2002, Compaq and Hewlett-Packard combined. CPQ was Compaq’s pre-merger ticker symbol. The present ticker symbol (HPQ) was created by combining this with the Hewlett-Packard ticker sign (HWP).

  • Acquisition:

In a straightforward acquisition, the acquiring business buys the bulk of the acquired company, which keeps its original name and organisational structure. The 2004 acquisition of John Hancock Financial Services by Manulife Financial Corporation, in which both businesses kept their names and organisational structures, is an illustration of this kind of deal. Six By using a whitewash resolution, the target company may demand that the purchasers guarantee that the target business will continue to operate profitably for a certain amount of time following acquisition.

  • Consolidations:

By merging key operations and doing away with outdated corporate frameworks, consolidation results in the creation of a new corporation. Following their acceptance, shareholders of both firms will get common equity shares in the combined company. The consolidation requires their permission. For instance, the 1998 announcement of a merger between Citicorp and Travellers Insurance Group led to the creation of Citigroup.

  • Tender offers:

In a tender offer, one business proposes to pay a certain amount instead of the going rate for the other business’s outstanding stock. By passing the management and board of directors, the purchasing business makes the offer directly known to the other company’s shareholders. For instance, Johnson & Johnson submitted a $438 million tender offer to purchase Omrix Biopharmaceuticals in 2008. By the end of December 2008, the agreement had been finalised when the company accepted the tender offer.

  • Acquisition of assets:

An asset acquisition occurs when a business directly buys the assets of another business. The shareholders of the company whose assets are being acquired must provide their permission. During bankruptcy procedures, it is common for other companies to bid for different assets of the insolvent company. The bankrupt company is then liquidated upon the ultimate transfer of assets to the purchasing firms.

  • Management acquisitions:

In a management acquisition, which is often referred to as a management-led buyout (MBO), the executives of one firm acquire a majority stake in another, therefore bringing it private. In an attempt to assist with financing a transaction, these former CEOs frequently collaborate with financiers or former corporate officers. These M&A deals usually require the approval of the majority of shareholders and are financed mostly through debt. For instance, Dell Corporation declared in 2013 that its founder, Michael Dell, had purchased the company.


G Akshay Associates