Carry forward and set off of loss from Capital gains
[Section-111 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 111(1) of Income Tax Act 2025
111(1) The unabsorbed capital loss for any tax year shall be carried forward to the subsequent tax year and shall be set off in the manner provided in sub-section (2).
Section 111(2) of Income Tax Act 2025
111(2) The unabsorbed capital loss arising from transfer of capital asset, being––
- (a) a long-term capital asset, may be set off only against capital gains, if any, from transfer of any other long-term capital asset during the subsequent tax year and so on; and
- (b) a short-term capital asset, shall be set off against capital gains, if any, from transfer of any other capital asset during the subsequent tax year and so on.
Section 111(3) of Income Tax Act 2025
111(3) The unabsorbed capital loss referred to in sub-section (1), shall be carried forward to the following tax year, not being more than eight tax years immediately succeeding the tax year in which such loss was first computed.
Section 111(4) of Income Tax Act 2025
111(4) In this section, “unabsorbed capital loss” means loss computed under the head “Capital gains” for any tax year, which has not been, or is not wholly, set off under section 108 for the said tax year.
FAQs on Section 111 of Income Tax Act 2025
What is “unabsorbed capital loss” as per the Income Tax Act, 2025?
It refers to the loss computed under the head “Capital gains” for a tax year that has not been, or is not fully, set off under section 108 for that year.
Can capital losses be carried forward under the Income Tax Act, 2025?
Yes, unabsorbed capital losses can be carried forward to subsequent tax years as per section 111(1).
For how many years can unabsorbed capital losses be carried forward?
They can be carried forward for up to eight tax years immediately succeeding the year in which the loss was first computed.
Can short-term capital losses be set off against long-term capital gains?
Yes, short-term capital losses can be set off against both short-term and long-term capital gains in subsequent years.
Can long-term capital losses be set off against short-term capital gains?
No, long-term capital losses can only be set off against gains from transfer of other long-term capital assets.
In which section of the Income Tax Act, 2025 is the carry forward and set off of capital losses governed?
It is governed under section 111 of the Income Tax Act, 2025.
What is the prerequisite for a capital loss to be carried forward?
The capital loss must remain unabsorbed (i.e., not fully set off) in the tax year in which it was computed.
Can capital loss be carried forward indefinitely?
No, it can only be carried forward for a maximum of eight subsequent tax years.
Does section 111 distinguish between long-term and short-term capital losses?
Yes, long-term capital losses can only be set off against long-term gains, whereas short-term losses can be set off against any type of capital gain.
Is there any limitation on the number of times a loss can be carried forward within the eight-year limit?
No, the loss can be carried forward and set off each year within the eight-year limit until it is fully absorbed.
Is filing of return mandatory for carrying forward capital loss?
The Act does not specify it under section 111, but compliance with procedural provisions under other sections may be required.
Can capital loss be adjusted against income from other heads?
No, as per section 111(2), unabsorbed capital loss can only be set off against capital gains, not against other heads of income.
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