Direct Tax Laws & International Taxation · Aggregation of Income, Set Off or Carry Forward of Losses

Carry Forward of Losses under Various Heads

Updated 5 October 2026 · Fact-checked

Carry forward lets you use a loss that could not be set off in the year it arose against income of later tax years. House property, business and capital losses go forward for 8 tax years, each against specified income only. Unabsorbed depreciation goes forward indefinitely. Most carry forwards need a return filed by the due date.

Understand Carry Forward of Losses under Various Heads

A loss is first set off in the same year, within the head and then across heads. Whatever remains is the unabsorbed loss. The Act lets you carry it forward, but only for some heads and only against specified income in later years. Each carried-forward loss has three attributes: the head it belongs to, the income it can be set off against, and how long it lives.

Two heads, salary and income from other sources, do not carry forward losses. Salary has no loss. Income from other sources has no carry forward, with one exception: loss from owning and maintaining race horses goes forward 4 years against income from the same activity. The other three heads (house property, business or profession, and capital gains) each have a carry forward rule.

House property loss goes forward for 8 tax years immediately after the year of loss. It can be set off only against income from house property. Check the regime: under the concessional individual regime, a loss under house property on a let-out property cannot be set off against other heads and cannot be carried forward. Do not apply the regular-regime carry forward there. Business loss (non-speculative) goes forward for 8 tax years and can be set off only against profits of a business or profession, not necessarily the same business. Capital loss goes forward for 8 tax years. Short-term capital loss can be set off against any capital gain, short-term or long-term. Long-term capital loss can be set off only against long-term capital gain.

Unabsorbed depreciation is treated differently. It is added to the depreciation allowance of the next year and so has no time limit. It can be set off against business profits first and then against income under any other head except salary. It can be carried forward even if the business is closed.

Two conditions run through the topic. First, the loss must be determined in a return filed by the due date, except for house property loss and unabsorbed depreciation. Second, the loss is set off in the order in which it arose, earliest year first. Special cases such as speculation loss (4 years, against speculative profit) and loss of a specified business (no time limit, against specified business profit) are covered in their own topics.

Key rules to remember

House property loss: Carry forward: 8 tax years | Set off only against: income from house property; The return can be filed late and the loss still goes forward. In the same year, the set off against other heads is capped at ₹2,00,000. Check the regime: under the concessional individual regime, a loss under house property on a let-out property cannot be set off against other heads and cannot be carried forward.
Non-speculative business loss: Carry forward: 8 tax years | Set off only against: profits and gains of business or profession; The return must be filed by the due date. It is not restricted to the same business, but it cannot be set off against salary in the same year.
Unabsorbed depreciation: Carry forward: no time limit | Set off against: business profit first, then income under any other head except salary; No due-date return condition. The business need not continue. It cannot be set off against salary. Order within business income: current-year depreciation is deducted first in computing business profit, then brought-forward business loss is set off, then unabsorbed depreciation.
Short-term capital loss: Carry forward: 8 tax years | Set off against: short-term or long-term capital gain; The return must be filed by the due date.
Long-term capital loss: Carry forward: 8 tax years | Set off against: long-term capital gain only; The return must be filed by the due date. A long-term loss cannot be set off against short-term gain.
Order of set off of brought-forward losses: Earliest year's loss first, within each type; Count the 8 years from the year after the loss year. A loss of 2026-27 can be used up to 2034-35.
Other sources and race horses: Other sources: no carry forward | Race horse loss: 4 years against race horse income; Loss from owning and maintaining race horses is the only carry forward under this head.

How to solve Carry Forward of Losses under Various Heads questions

Use the same sequence for any question that asks you to compute total income, or the loss to be carried forward, with losses of earlier years.

1Compute the current-year income or loss under each head. Include current-year depreciation in the business computation.
2Do set off within the head first. Set house property loss against other house property income, business loss against other business income, and capital losses by their type.
3Do inter-head set off. State the order you follow. Check the limit on house property loss (₹2,00,000), that business loss cannot go against salary, and that capital loss cannot go against other heads.
4Apply brought-forward losses in order: house property against house property, then business loss against business profit, then unabsorbed depreciation against business profit and then against any other head except salary. Apply capital losses against capital gains by type.
5Take the earliest year first and check that each brought-forward loss is within 8 tax years.
6Check the return condition. If the return for the loss year was late, business and capital losses are not available, but house property loss and unabsorbed depreciation are.
7Compute total income and list what carries forward, by head, amount and last year of use.
8Write the answer in the form: rule, application, conclusion.

Quickest way: Three-column loss chart

When to use it: Use it when a question gives many losses across several years and asks for total income and the balance to be carried forward.

Draw three columns: loss type, can be set off against, and years or conditions.
Fill each loss with its balance and check the 8-year limit and the return condition before using it.
Run business first: business profit, less brought-forward business loss, less unabsorbed depreciation.
Run capital gains next: short-term gain less short-term loss, long-term gain less long-term loss. Then use any short-term loss left over against long-term gain.
Use any unabsorbed depreciation left over against other heads except salary, and write the closing balances.

Common mistakes in Carry Forward of Losses under Various Heads

Setting off business loss against salary
Students remember that business loss can be set off across heads and forget the salary exception.
Fix: Write the exclusion: a current-year business loss can go against any head except salary. This applies to the current-year loss only. A carried-forward business loss is set off only against profits of a business or profession in later years, not against other heads.
Setting off long-term capital loss against short-term capital gain
Students treat all capital losses as one pool.
Fix: Long-term loss goes only against long-term gain. Short-term loss goes against both.
Denying carry forward of house property loss or unabsorbed depreciation because the return was late
Students apply the due-date return rule to all losses.
Fix: The due-date return rule applies to business and capital losses. House property loss and unabsorbed depreciation are exceptions.
Putting an 8-year limit on unabsorbed depreciation
Students generalise the 8-year rule from the other heads.
Fix: Unabsorbed depreciation has no time limit. It becomes part of the next year's depreciation allowance.
Setting unabsorbed depreciation off before the brought-forward business loss
Students set off the unabsorbed items in the order they appear in the question.
Fix: The order is current-year depreciation, then brought-forward business loss, then unabsorbed depreciation. Follow this order in every answer.
Setting off unabsorbed depreciation against salary
Students read 'any other head' as every head.
Fix: Unabsorbed depreciation can be set off against income under any head except salary.
Counting the 8 years from the year of loss itself
The wording says 8 years, and students include the loss year.
Fix: Count from the year immediately after the loss year. A loss of 2026-27 can be used up to 2034-35.

Worked examples

Example 1

Meera, a resident individual under the regular (non-concessional) regime, has the following for tax year 2026-27: salary ₹9,00,000; interest paid on her self-occupied house property ₹3,10,000 (no other house income; the Act caps this deduction at ₹2,00,000); current-year loss from her non-speculative business ₹2,00,000; interest income ₹1,50,000. Her return is filed by the due date. Compute her total income before Chapter deductions and the losses carried forward.

Show the solution

Salary: ₹9,00,000. Other sources: ₹1,50,000. Business: loss ₹2,00,000.
House property: the interest deduction for the self-occupied property is restricted to ₹2,00,000. So the house property loss is ₹2,00,000. The excess ₹1,10,000 is not allowed and is not carried forward.
Order of set off: the Act does not fix one order for setting off current-year losses against other heads. Business loss cannot go against salary, so the only income it can absorb here is the interest income. Apply it there. The house property loss then goes against salary.
Business loss of ₹2,00,000 is set off against interest income of ₹1,50,000, leaving interest income nil and business loss ₹50,000.
House property loss of ₹2,00,000 is within the ₹2,00,000 cap for set off against other heads. It is set off against salary: ₹9,00,000 − ₹2,00,000 = ₹7,00,000.
Gross total income: salary ₹7,00,000 + other sources nil = ₹7,00,000.
Business loss ₹50,000 is carried forward for 8 tax years, against business profit only. This is allowed because the return was filed on time.

Answer: Gross total income is ₹7,00,000, before Chapter deductions. Carried forward: business loss ₹50,000, usable up to 2034-35. There is no house property loss to carry forward.

Example 2

Star Ltd has these items for tax year 2026-27: business profit after current depreciation ₹6,00,000; short-term capital gain ₹1,50,000; long-term capital gain ₹3,00,000. Brought forward: business loss of 2023-24 ₹4,00,000; unabsorbed depreciation ₹5,00,000; short-term capital loss of 2024-25 ₹1,00,000; long-term capital loss of 2022-23 ₹2,00,000. All earlier returns were filed on time. Compute total income and the balances to carry forward.

Show the solution

Business: profit ₹6,00,000 less brought-forward business loss ₹4,00,000 = ₹2,00,000.
Unabsorbed depreciation ₹5,00,000 is set off against the remaining business profit of ₹2,00,000. Balance ₹3,00,000.
Short-term capital gain: ₹1,50,000 − short-term capital loss ₹1,00,000 = ₹50,000.
Long-term capital gain: ₹3,00,000 − long-term capital loss ₹2,00,000 = ₹1,00,000.
Capital gains remaining: ₹50,000 + ₹1,00,000 = ₹1,50,000.
The balance unabsorbed depreciation of ₹3,00,000 is set off against capital gains of ₹1,50,000, because business profit is exhausted and unabsorbed depreciation can be set off against income under any head except salary. Balance ₹1,50,000.
Total income: business nil + capital gains nil = nil.

Answer: Total income is nil. Unabsorbed depreciation of ₹1,50,000 is carried forward with no time limit. All brought-forward business and capital losses are used up.

Exam tips

Draw the loss chart in the first two minutes. It earns marks in theory questions and organises numerical ones.
In numericals, always state the order: current depreciation, brought-forward business loss, then unabsorbed depreciation. Marks go for the order.
State the return condition each time you carry forward a business or capital loss. Say the return must be filed by the due date.
Write the last year of use when asked for the time limit. For a loss of 2026-27 it is 2034-35.
In case-scenario MCQs, look for the trap: late return, a long-term loss against a short-term gain, business loss against salary, or the regime of an individual.

Practice questions from Aggregation of Income, Set Off or Carry Forward of Losses

Carry Forward of Losses under Various Heads in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Carry Forward of Losses under Various Heads: frequently asked questions

What is the time limit for carry forward of losses?

House property loss, business loss and capital loss go forward for 8 tax years immediately after the year of loss. Unabsorbed depreciation has no time limit. Speculation loss is 4 years, and loss of a specified business has no time limit.

Can unabsorbed depreciation be carried forward if the return is late?

Yes. Unabsorbed depreciation does not depend on filing the return by the due date. House property loss is also allowed to go forward with a late return, subject to the regime rules. Business and capital losses are not.

Can capital loss be set off against other heads of income?

No. Capital loss can be set off only against capital gains. Short-term capital loss goes against short-term or long-term gains. Long-term capital loss goes against long-term gains only.

Can I carry forward a business loss if the business is closed?

Business loss can be set off only against profits of a business or profession in later years, so you need some business income in those years. It need not be the same business. Unabsorbed depreciation can be carried forward even if the business has stopped, and it can be set off against any head except salary.