Direct Tax Laws and International Taxation · Return of Income

Return of Loss and Carry Forward of Loss under Income-tax Act 2025

Updated 11 October 2026 · Fact-checked

A return of loss is a return that shows a loss. To carry forward most losses (business, speculation, specified business, capital, race horse), you must file it by the due date. A late return loses the carry forward. Exceptions are house property loss and unabsorbed depreciation. Check each loss for its time limit and the income it can be set off against.

Understand Return of Loss and Carry Forward

A loss you cannot use this year can be carried forward and set off against profits of later years. This saves tax later. The law gives this benefit only if you follow conditions. The first condition is filing the return of income on time.

The rule in plain words: if you want to carry forward a loss, you must file the return showing that loss by the due date for filing the return (the due date is in section 263(1)). If you file late, you can still file a belated return, but you lose the right to carry forward most losses. The current-year set-off against other heads is not affected.

The losses that need a timely return are business loss (non-speculative), speculation business loss, specified business loss, capital loss, and loss from owning and maintaining race horses. Two losses are exceptions: loss under the head house property and unabsorbed depreciation. You can carry these forward even if the return is filed late.

Time limits and set-off rules come from the loss sections. Speculation loss (section 113) is set off only against speculation profits and is carried forward for no more than four tax years after the year the loss arose. Specified business loss (section 114) is set off only against profits of another specified business, and the supplied text sets no year limit. Race horse loss (section 115) is set off only against income from owning and maintaining race horses, again for no more than four tax years. Business loss under section 112 and capital loss have their own limits, which you should revise from your study material.

Special case: for a company, buying and selling shares of other companies is deemed speculation business to that extent, unless the exceptions in section 113(6) apply. Certain bank and insurer amalgamations get a longer carry forward of eight tax years under section 117.

Key rules to remember

Timely return rule: Carry forward allowed ⇔ return showing the loss filed by the due date under section 263(1); Applies to business, speculation, specified business, capital and race horse losses. A belated return does not preserve them.
Exceptions to timely return: House property loss and unabsorbed depreciation: carry forward allowed even if the return is late; Learn these two as the only standard exceptions. The loss must still be properly computed and claimed in the return.
Speculation loss (section 113): Set off only against speculation profits; carry forward ≤ 4 tax years after the loss year; Section 113(1) to (3). Cannot be set off against normal business profit.
Specified business loss (section 114): Set off only against profits of another specified business; carried forward 'and so on'; The supplied text sets no year limit. Section 114 refers to specified business in section 46.
Race horse loss (section 115): Loss = expenditure (not capital) for maintaining race horses − stake money, if stake money is less; set off only against income from the activity; carry forward ≤ 4 tax years; Stake money means gross prize money received by the owner.
Company share dealing (section 113(5) and (6)): Share purchase and sale by a company = deemed speculation, to that extent; Not applicable if gross total income mainly falls under house property, capital gains or other sources, or if principal business is trading in shares, banking or granting loans and advances.
Bank and insurer amalgamation (section 117(2)): Accumulated loss carried forward ≤ 8 tax years from the year it was first computed for the original predecessor; Applies to schemes brought into force on or after 1 April 2025. Speculation losses are excluded from accumulated loss.

How to solve Return of Loss and Carry Forward questions

Use this order for any question on return of loss and carry forward.

1List every loss in the question and name its type: business, speculation, specified business, capital, house property, race horse, or unabsorbed depreciation.
2Check the date the return was filed against the due date under section 263(1). Mark it timely or belated.
3If the return is belated, keep only house property loss and unabsorbed depreciation for carry forward. All other losses lapse for carry forward.
4If the return is timely, apply the set-off rule for each loss: which income it can be set off against, in which year.
5Count the time limit from the year after the loss year. For speculation and race horse losses, allow four tax years only.
6Set off year by year in order, show the balance carried forward and any amount that lapses.
7Check special points: company share dealing under section 113(5) and (6), and the eight-year rule for bank amalgamation under section 117.
8State the final answer: amount carried forward, amount lost, and the reason.

Quickest way: Two-gate check

When to use it: Use for MCQs and short case questions asking whether a loss can be carried forward.

Gate 1: was the return filed by the due date? If no, only house property loss and unabsorbed depreciation survive.
Gate 2: is the loss within its time limit and being set off against the right income type?
If both gates pass, carry forward. Otherwise it lapses.
For years, count four tax years after the loss year for speculation and race horse losses.

Common mistakes in Return of Loss and Carry Forward

Saying all losses can be carried forward even if the return is filed late.
Students remember the belated return facility and assume it saves everything.
Fix: A belated return is valid but does not preserve business, speculation, specified business, capital or race horse losses. Only house property loss and unabsorbed depreciation survive.
Setting off speculation loss against normal business profit.
Both come under business income, so they look the same.
Fix: Under section 113(1) speculation loss is set off only against speculation profit. Same for specified business under section 114.
Counting the four years from the loss year itself.
Students count the loss year as year one.
Fix: Section 113(3) and 115(3) allow four tax years immediately succeeding the loss year. Start counting from the next year.
Treating a company's share trading as normal business in every case.
Students forget the deemed speculation rule.
Fix: Under section 113(5) the share business of a company is deemed speculation to that extent. Check the section 113(6) exceptions first.
Applying a four-year limit to specified business loss.
It sits next to speculation loss and looks similar.
Fix: Section 114 as supplied has no year limit. Do not add one.
Forgetting that the exception for house property loss and depreciation still needs the loss to be computed properly.
Students think the exception means no filing at all.
Fix: The exception removes only the timely-filing condition. Claim the loss in the return and follow its own set-off rules.

Worked examples

Example 1

Mr. Rao, a resident individual, has no other income in tax year 2026-27. He has a business loss of ₹4,00,000, a house property loss of ₹1,20,000 (not set off in the year) and unabsorbed depreciation of ₹50,000. He files his return after the due date under section 263(1). Which losses can he carry forward?

Show the solution

Return is belated, so the first gate fails for the business loss.
Business loss of ₹4,00,000 cannot be carried forward.
House property loss is an exception to the timely-return condition, so ₹1,20,000 is carried forward.
Unabsorbed depreciation is also an exception, so ₹50,000 is carried forward.

Answer: Carry forward: house property loss ₹1,20,000 and unabsorbed depreciation ₹50,000. The business loss of ₹4,00,000 lapses for carry forward.

Example 2

Meera Traders Ltd has a speculation business loss of ₹80,000 in tax year 2026-27 and files its return on time. Speculation profits: 2027-28 nil; 2028-29 ₹30,000; 2029-30 ₹25,000; 2030-31 ₹10,000; 2031-32 ₹40,000. It also has normal business profit every year. Compute the set-off and the amount lost.

Show the solution

Timely return, so the loss is eligible for carry forward.
Under section 113(1) it can be set off only against speculation profits, not normal business profit.
Four tax years after 2026-27 are 2027-28 to 2030-31. 2031-32 is outside the limit.
2027-28: no speculation profit, so nil set off. Balance ₹80,000.
2028-29: set off ₹30,000. Balance ₹50,000.
2029-30: set off ₹25,000. Balance ₹25,000.
2030-31: set off ₹10,000. Balance ₹15,000.
2031-32: beyond four years, so ₹15,000 cannot be set off.

Answer: Total set off ₹65,000 (₹30,000 + ₹25,000 + ₹10,000). ₹15,000 lapses. The 2031-32 profit of ₹40,000 gets no set off.

Exam tips

Start every loss question by checking the filing date. Many case questions hide a late return in one line.
Write the exceptions (house property loss, unabsorbed depreciation) as a one-line list. Examiners often test them in MCQs.
For multi-year set-off, draw a small year-wise table in your answer showing opening balance, set-off and closing balance.
Quote the section number for speculation (113), specified business (114) and race horse (115) rules when you are sure of it.
In company cases, check the share trading rule in section 113(5) and the exceptions in section 113(6) before computing.

Practice questions from Return of Income

Return of Loss and Carry Forward in other exams

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

Return of Loss and Carry Forward: frequently asked questions

What is a return of loss?

It is a return of income that shows a loss under a head of income. You file it so that the loss can be carried forward to later years. For most losses it must be filed by the due date.

Which losses can be carried forward without filing the return on time?

Loss under the head house property and unabsorbed depreciation. Business, speculation, specified business, capital and race horse losses need a timely return.

For how many years can a speculation loss be carried forward?

Not more than four tax years immediately succeeding the tax year in which the loss was first computed, under section 113(3). It can be set off only against speculation business profits.

Can a belated return still be filed if I have a loss?

You can file a belated return, but you lose the carry forward of most losses. Only house property loss and unabsorbed depreciation are preserved.