Taxation · Set-Off or Carry Forward and Set-off of Losses

Losses from Owning and Maintaining Race Horses and Other Sources

Updated 4 October 2026 · Fact-checked

A loss from owning and maintaining race horses can be set off only against income from the same activity, and carried forward four tax years if the return is filed on time. No loss arises on lottery or gambling winnings as no expenditure is allowed. Gambling or betting losses cannot be set off against any income or carried forward.

Understand Losses from Owning and Maintaining Race Horses and Other Sources

Normally a loss under one head can be set off against income under another head. Losses from some activities are ring-fenced. Law does not want you to cut your tax on salary or business income with a loss from horse racing or gambling.

There are two separate ideas here. Do not mix them.

1. Winnings from lotteries, crossword puzzles, races (including horse races), card games, other games, gambling and betting. Winnings are taxed at a flat special rate. No expenditure or allowance is deducted from them, so no loss can arise on these winnings. Losses incurred in gambling or betting are not allowed to be set off against any income and cannot be carried forward.

2. The activity of owning and maintaining race horses. This is a continuing activity: you keep horses and incur costs such as feed, stable and training. Its income is taxed under Income from Other Sources, and the usual expenses and depreciation are allowed. If the result is a loss, you can set it off only against income from the same activity. Any unabsorbed loss is carried forward and set off against income from this activity in the next four tax years.

The carry forward has two conditions. The loss must be determined in a return filed by the due date, and it can be set off only against income from owning and maintaining race horses. The four years are counted from the tax year immediately after the one in which the loss was first computed.

A general point on other sources: no expenditure is deductible from winnings, so no loss can arise from them. The loss from owning and maintaining race horses is the loss specifically dealt with under this head, and it is ring-fenced as explained above. Do not treat it as a general other-sources loss that can be set off against other heads.

Key rules to remember

Race horse activity loss: set-off: Loss from owning and maintaining race horses → set off only against income from owning and maintaining race horses; No set-off against salary, house property, business, capital gains or any other other-sources income, including winnings from races.
Race horse activity loss: carry forward: Unabsorbed loss → carried forward for 4 tax years immediately succeeding the tax year of loss; Set off only against income from the same activity. Return must be filed by the due date. After 4 years the balance lapses.
Lottery, races, gambling, betting winnings: Winnings taxed gross at a flat special rate → no expenditure allowed, so no loss arises; Nothing to set off or carry forward. Losses incurred in gambling or betting are not allowed against any income and cannot be carried forward.

How to solve Losses from Owning and Maintaining Race Horses and Other Sources questions

Use this method for any question that mixes race horses, lottery, gambling and other income.

1List each income and loss separately and label its nature: salary, house property, business, capital gains, other sources.
2Separate winnings from lotteries, races, card games, gambling and betting from the activity of owning and maintaining race horses. They follow different rules.
3Compute the race horse activity result after allowable expenses and depreciation. If it is a loss, ring-fence it.
4Set off the current-year race horse loss only against income from the same activity in that year. Do not touch other heads.
5If a loss remains, carry it forward. Note the first tax year of loss and the last of the four succeeding years.
6In later years, set off brought forward loss against income from the activity only, within the four-year window. Show any lapsed balance.
7Tax lottery, gambling and similar winnings at the flat rate with no deduction of expenditure. No loss arises from them, and no other loss is set off against them.
8Add up the remaining heads to get Gross Total Income, then state the loss carried forward.

Quickest way: Ring-fence and test

When to use it: Use for MCQs and for the first line of a written answer on whether a loss can be set off.

Ask: is this a race horse activity loss, or a loss in gambling or betting?
Race horse activity loss: same-activity income only, carry forward 4 years.
Lottery, race, gambling winnings: no expenditure is allowed, so no loss arises. Gambling or betting losses: no set-off, no carry forward.
For MCQs, eliminate options showing set-off against salary, business or house property income, or carry forward of a gambling or betting loss.
For written answers, write the rule first, then the working, then the amount carried forward. This earns step marks even if the figure slips.

Common mistakes in Losses from Owning and Maintaining Race Horses and Other Sources

Setting off a race horse loss against salary or business income.
Students apply the general inter-head set-off rule.
Fix: Remember that this loss is ring-fenced and can be set off only against income from the same activity.
Deducting expenses from lottery or gambling winnings and then setting off or carrying forward the resulting 'loss'.
Students confuse it with the race horse activity loss, since both involve horses or games.
Fix: No expenditure is allowed against winnings, so no loss arises and there is nothing to set off or carry forward. Only the race horse owning and maintaining activity produces a loss that is carried forward.
Carrying forward the race horse loss for 8 years.
Students mix it with the 8-year rule for business losses.
Fix: The period is 4 tax years immediately succeeding the year of loss.
Setting off a race horse activity loss against winnings from horse races.
Both seem to be 'horse race' income.
Fix: Winnings from races are a separate specific income taxed at a flat rate. Only income from owning and maintaining race horses can absorb the loss.
Deducting expenses from lottery winnings.
Students treat winnings as normal other-sources income.
Fix: No expenditure or allowance is deducted from winnings from lotteries, races, games, gambling or betting.
Ignoring the due date condition for carry forward.
Students focus on the computation and forget the return filing requirement.
Fix: State that the loss is carried forward only if the return is filed by the due date.

Worked examples

Example 1

For tax year 2026-27, Mr. Rao has salary income of ₹9,00,000, interest income of ₹40,000 and a loss of ₹1,50,000 from owning and maintaining race horses. He files his return by the due date. Compute his Gross Total Income and the loss to be carried forward.

Show the solution

Salary income = ₹9,00,000.
Income from other sources before the race horse activity = interest ₹40,000.
The race horse loss of ₹1,50,000 can be set off only against income from owning and maintaining race horses. He has none this year.
So no set-off is allowed against salary or interest.
Gross Total Income = ₹9,00,000 + ₹40,000 = ₹9,40,000.
The loss of ₹1,50,000 is carried forward to the next four tax years, 2027-28 to 2030-31, since the return is filed on time.

Answer: Gross Total Income = ₹9,40,000. Race horse loss of ₹1,50,000 is carried forward for set-off against race horse activity income of the four succeeding tax years.

Example 2

A race horse owner has a loss of ₹2,00,000 from the activity in tax year 2026-27, with the return filed on time. Income from the activity is ₹60,000 in 2027-28, nil in 2028-29, ₹1,10,000 in 2029-30 and ₹20,000 in 2030-31. Show the set-off and the loss lapsing, if any.

Show the solution

Loss of 2026-27 = ₹2,00,000. The four succeeding years are 2027-28 to 2030-31.
2027-28: set off ₹60,000. Balance = ₹2,00,000 − ₹60,000 = ₹1,40,000.
2028-29: no income from the activity, so no set-off. Balance remains ₹1,40,000.
2029-30: set off ₹1,10,000. Balance = ₹1,40,000 − ₹1,10,000 = ₹30,000.
2030-31: set off ₹20,000. Balance = ₹30,000 − ₹20,000 = ₹10,000.
2030-31 is the last of the four years, so the balance of ₹10,000 lapses.

Answer: Total set off = ₹60,000 + ₹1,10,000 + ₹20,000 = ₹1,90,000. The balance of ₹10,000 lapses after tax year 2030-31.

Exam tips

Write a one-line rule before the working: 'Loss from owning and maintaining race horses is set off only against income from the same activity.'
In mixed problems, keep lottery winnings and race horse activity income in separate lines. Examiners check this.
Always state the carry forward period as 4 tax years and the last year by name.
If the question gives no information on return filing, state your assumption that the return is filed by the due date.
In MCQs, watch for options that allow set-off against salary or carry forward of a gambling or betting loss, and eliminate them.

Practice questions from Set-Off or Carry Forward and Set-off of Losses

Losses from Owning and Maintaining Race Horses and Other Sources: frequently asked questions

Can I set off a race horse loss against salary?

No. A loss from owning and maintaining race horses can be set off only against income from the same activity. It cannot reduce salary, house property, business or capital gains income.

For how many years can a race horse loss be carried forward?

It can be carried forward for four tax years immediately succeeding the tax year in which the loss was first computed. The return must be filed by the due date. Any balance after four years lapses.

Can a lottery or gambling loss be set off or carried forward?

No. Winnings from lotteries, races, card games, gambling or betting are taxed at a flat special rate with no deduction of expenses, so no loss can arise on them. Losses incurred in gambling or betting cannot be set off against any income and cannot be carried forward.

Can a loss under Income from Other Sources be carried forward?

The loss specifically dealt with under this head is the race horse activity loss. It is ring-fenced: it is set off only against income from the same activity and carried forward for four tax years. No loss arises from winnings, because no expenditure is deductible from them.