Income Tax Loss Set-Off and Carry Forward Rules 2026 — Complete Guide
When you incur a loss in one income head, you can set it off against income in another head or carry it forward to future years. Here are the complete rules for FY 2026-27.
Types of Losses and Set-Off Rules
Capital Losses
| Loss Type | Can Set Off Against | Carry Forward |
|---|---|---|
| Short-Term Capital Loss (STCL) | STCG and LTCG | 8 years |
| Long-Term Capital Loss (LTCL) | LTCG only | 8 years |
Key rule: LTCL cannot be set off against STCG. STCL can be set off against both STCG and LTCG.
Example:
- STCL from stocks: ₹50,000
- LTCG from property: ₹2,00,000
- Set-off: ₹50,000 STCL against ₹2,00,000 LTCG
- Net LTCG: ₹1,50,000 (taxable at 12.5%)
Business Loss (Non-Speculative)
| Loss Type | Can Set Off Against | Carry Forward |
|---|---|---|
| Business loss (non-speculative) | Any income except salary | 8 years |
Condition: Business loss can be carried forward only if the ITR is filed on time (before the due date).
Speculative Business Loss (F&O, Intraday)
| Loss Type | Can Set Off Against | Carry Forward |
|---|---|---|
| Speculative loss | Speculative income only | 4 years |
F&O losses are speculative and can only be set off against F&O profits.
House Property Loss
| Loss Type | Can Set Off Against | Carry Forward |
|---|---|---|
| House property loss | Any income head (up to ₹2L) | 8 years |
Important: House property loss can be set off against salary income, but only up to ₹2,00,000 per year. The remaining loss is carried forward.
Example:
- Home loan interest: ₹4,00,000
- Rental income: ₹1,00,000
- House property loss: ₹3,00,000
- Set-off against salary: ₹2,00,000 (maximum)
- Carried forward: ₹1,00,000
Losses from Exempt Income
Losses from exempt income (e.g., agricultural income) cannot be set off against taxable income.
Inter-Head Set-Off Rules
| Loss From | Can Set Off Against |
|---|---|
| House property | Any income (up to ₹2L) |
| Business (non-speculative) | Any income except salary |
| Capital gains | Capital gains only |
| Speculative business | Speculative income only |
Salary income cannot be set off against any loss — salary is always positive.
Carry Forward Rules
To carry forward a loss:
- File ITR on time — Losses cannot be carried forward if ITR is filed late (except house property loss)
- Continue the same business — Business losses can be carried forward only if the same business continues
- Maintain books — For business losses, books of accounts must be maintained
Losses Under New Tax Regime
Under the new tax regime:
- House property loss cannot be set off against other income
- Business losses can still be set off and carried forward
- Capital losses follow the same rules as old regime
How to Report Losses in ITR
File ITR-2 (for capital losses) or ITR-3 (for business losses).
In Schedule CFL (Carry Forward of Losses):
- Enter losses from previous years being carried forward
- Enter current year losses to be carried forward
Frequently Asked Questions
Can I carry forward capital losses if I file ITR late?
No. Capital losses cannot be carried forward if ITR is filed after the due date. House property loss is the only exception — it can be carried forward even with late filing.
Can I set off F&O losses against salary income?
No. F&O losses are speculative and can only be set off against speculative income (F&O profits). They cannot be set off against salary.
How many years can I carry forward capital losses?
8 years. If you have LTCL from FY 2025-26, you can carry it forward until FY 2033-34.
Have capital losses or business losses to report? I handle ITR-2 and ITR-3 with loss set-off starting ₹999. Message me on WhatsApp.
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