Carry forward and set off of business loss
[Section-112 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 112(1) of Income Tax Act 2025
112(1) The unabsorbed business loss (other than loss from speculation business) for any tax year shall be carried forward to the subsequent tax year and shall be set off only against the profits and gains of business or profession, carried on by him and assessable for that tax year, if any, computed for such subsequent tax year, and so on.
Section 112(2) of Income Tax Act 2025
112(2) The unabsorbed business 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 112(3) of Income Tax Act 2025
112(3) The unabsorbed business loss referred to in sub-section (1) shall first be allowed to be set off before allowing set off of any carried forward allowance under section 33(11) or 45(7).
Section 112(4) of Income Tax Act 2025
112(4) In this section, “unabsorbed business loss” means, loss computed under the head “Profits and gains of business or profession” (other than loss from speculation business) for the tax year, which has not been, or is not wholly, set off against income from any other head, under section 109 for the said tax year.
FAQs on Section 112(4) of Income Tax Act 2025
What is meant by “unabsorbed business loss” under this Act?
Unabsorbed business loss means the loss computed under the head “Profits and gains of business or profession” (excluding speculation business) that has not been, or is not fully, set off against income from any other head under section 109 for the same tax year.
Can business loss be carried forward under this Act?
Yes, unabsorbed business loss (excluding loss from speculation business) can be carried forward to subsequent tax years.
Against which income can the carried forward business loss be set off?
It can be set off only against profits and gains of business or profession carried on by the assessee and assessable for that subsequent tax year.
Is there any time limit for carrying forward business losses?
Yes, the loss can be carried forward for a maximum of eight tax years immediately succeeding the tax year in which the loss was first computed.
Can business loss be set off against income from other heads in future years?
No, carried forward business loss can only be set off against business income in future years.
What is the order of set off when there are carried forward losses and allowances?
Unabsorbed business loss must be set off first before allowing the set off of any carried forward allowances under section 33(11) or 45(7).
Does the loss have to be from the same business to be set off?
No, it can be set off against profits from any business or profession carried on by the assessee, not necessarily the same business.
Can a loss from speculation business be carried forward under Section 112?
No, Section 112 specifically excludes losses from speculation business.
Is filing of return necessary to carry forward business losses?
The Act does not mention this in Section 112. Any such requirement must be confirmed from procedural provisions elsewhere in the Act or rules.
What happens if the business is discontinued and then restarted?
Section 112 allows set off against any business carried on by the assessee. So, if a business is restarted, the losses may still be set off, subject to other applicable conditions in the Act.
Is there any limit on the amount of loss that can be carried forward?
There is no monetary limit specified in Section 112. The entire unabsorbed business loss can be carried forward within the prescribed time frame.
Can the loss be carried forward indefinitely until set off?
No, it can be carried forward for up to eight tax years only.
What happens if there is no business income in the next eight years?
If no eligible business income arises within eight years, the unabsorbed business loss will lapse.
Can losses be carried forward even after a change in the nature or structure of business?
Section 112 does not restrict set off due to changes in business structure, provided the business is carried on by the same assessee.
Is set off allowed if the business was not operational in some of the eight years?
Set off can be done in any year when the business is operational and profits are earned, within the eight-year limit.
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