Set off of losses under the same head of income
[Section-108 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 108(1) of Income Tax Act 2025
108(1) Unless provided otherwise in this Act, for any tax year, if net result of computation from any source under any head of income (other than “Capital gains”) is a loss, then assessee shall be entitled to set off such loss against his income from any other source under the same head for that tax year.
Section 108(2) of Income Tax Act 2025
108(2) Any loss, as a result of computation made under sections 72 to 90, for any tax year, arising from transfer of a capital asset as arrived at under a similar computation made for the tax year in respect of any other capital asset being,––
- (a) a long-term capital asset, shall be set off only against gains, if any, from transfer of another long-term capital asset; and
- (b) a short-term capital asset, shall be set off against gains, if any, from transfer of any capital asset.
FAQs on Section 108 of Income Tax Act 2025
What does Section 108(1) of the Income Tax Act, 2025 provide?
It allows an assessee to set off loss from one source against income from another source under the same head of income, except for capital gains, in the same tax year.
Can a loss under one source of income be set off against another source under the same head?
Yes, unless specifically prohibited elsewhere in the Act.
Is set off of losses under the same head permitted for all heads of income?
No, this general rule does not apply to the head “Capital gains”, which is governed separately under Section 108(2).
What is meant by ‘same head’ of income?
It refers to categories like “Income from house property”, “Profits and gains from business or profession”, etc.
Can business loss from one business be set off against income from another business?
Yes, if both are under the head “Profits and gains from business or profession”.
Is set off allowed if the assessee has loss from speculative business and income from non-speculative business?
Not under Section 108(1), as exceptions may apply elsewhere in the Act.
Can a loss from owning and maintaining race horses be set off against income from other business activities?
No, unless explicitly permitted by other provisions of the Act.
How is loss under the head “Capital gains” treated under Section 108(2)?
It is treated separately and can only be set off in a specified manner, based on whether the asset is long-term or short-term.
Can long-term capital loss be set off against short-term capital gains?
No, it can only be set off against gains from transfer of another long-term capital asset.
Can short-term capital loss be set off against long-term capital gains?
Yes, short-term capital loss can be set off against gains from any capital asset, whether short-term or long-term.
Is there any restriction on setting off capital losses within the same tax year?
Yes, Section 108(2) imposes restrictions based on the type of capital asset (short-term or long-term).
What happens if the capital loss cannot be fully set off in the same year?
The Act may allow carry forward under separate provisions, but Section 108 only deals with same-year set off.
Does Section 108(2) apply to capital losses calculated under Sections 72 to 90?
Yes, it applies to losses determined from transfer of capital assets as per Sections 72 to 90.
Is it mandatory to match the nature of capital asset for set off purposes?
Yes, long-term losses must be matched with long-term gains; short-term losses have broader set-off scope.
Can capital losses be set off against income under other heads?
No, set off is allowed only within the same head, i.e., capital gains.
What is the difference in treatment between short-term and long-term capital losses?
Long-term capital losses can only be set off against long-term capital gains, while short-term losses can be set off against both types of gains.
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