Set-off of losses refers to the procedure of offsetting losses against the profit or revenue of that particular financial year. Losses that were not successfully set off against annual income in the same year can be carried forward again and set against the earned income in later years.
An intra-head set-off or an inter-head set-off are two main types of set-offs.
There could still be significant unadjusted losses despite adopting the appropriate and permissible intra-head and inter-head modifications. These unfulfilled losses are legally allowed to be carried forward to subsequent years to implement changes to income in those years.
Losses incurred from real estate or housing property can be carried forward for up to eight assessment years
If a total loss under the category ‘income from residential property’ cannot be thoroughly compensated in the year it originates, the unprocessed loss might be carried over to the following year.
Loss from a Business or Profession is grouped into four categories:
- Ordinary business losses can be carried forward for a further eight assessment years.
- Losses from speculation businesses can be carried forward through four assessment years.
- Carrying forward unabsorbed depreciation can be done indefinitely as long.
- Losses from Specified Business can be carried forward pretty much indefinitely under Section 35AD.
There are two different types of capital gain losses. Both long-term capital loss and short-term capital loss can both be carried forward for an average of eight years of assessment.
Losses incurred when owning and actively managing racing horses can be carried forward for four Assessment Years.
However, in some particular situations, to effectively carry forward the losses, the taxpayer must have submitted the return before the submission deadline expressly stated in section 139. (1).