Set off and carry forward of losses from specified activity
[Section-115 as per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 115(1) of Income Tax Act 2025
115(1) Any loss incurred by the assessee in the specified activity during any tax year, shall not be set off against the income, if any, from any source other than specified activity for the said tax year.
Section 115(2) of Income Tax Act 2025
115(2) The unabsorbed loss from the specified activity for any tax year shall be carried forward to the subsequent tax year and shall be set off,––
- (a) only against the income from specified activity, if any, computed for such subsequent tax year, and so on; and
- (b) only when the specified activity is carried on by the assessee in that tax year.
Section 115(3) of Income Tax Act 2025
115(3) The unabsorbed loss from the specified activity referred to in sub-section (2) shall not be carried forward for more than four tax years immediately succeeding the tax year in which such loss was first computed.
Section 115(4) of Income Tax Act 2025
115(4) In this section,––
- (a) “income by way of stake money” means the gross amount of prize money received by the owner of race horses participating in horse races on their winning a particular position in such race;
- (b) “loss incurred by the assessee in the specified activity” means the amount by which the income by way of stake money, if any, falls short of the expenditure, not being capital expenditure, incurred wholly and exclusively for maintaining race horses;
- (c) “race horse” means a horse upon which wagering or betting may be lawfully made in a horse race;
- (d) “specified activity” means the activity of owning and maintaining race horses;
- (e) “unabsorbed loss from the specified activity” means any loss computed in respect of the specified activity carried on by the assessee during the tax year, which has not been, or is not wholly, set off against income, if any, of the specified activity under sub-section (1) for the said tax year.
FAQs on Section 115 of Income Tax Act 2025
What is the specified activity referred to in Section 115?
The specified activity means the activity of owning and maintaining race horses.
Can losses from the specified activity be set off against other income?
No, such losses cannot be set off against income from any other source for the same tax year.
How can the loss from specified activity be utilized?
It can be carried forward to be set off only against income from the same specified activity in subsequent tax years.
For how many years can a loss from specified activity be carried forward?
A maximum of four tax years immediately succeeding the year in which the loss was first computed.
What is meant by ‘unabsorbed loss from specified activity’?
It refers to any loss from the specified activity in a tax year that has not been wholly set off against income from the same activity in that year.
Can losses be set off in a year when the specified activity is not carried on?
No, losses can be set off only in a year in which the specified activity is carried on by the assessee.
What constitutes ‘loss incurred’ in the specified activity?
It is the excess of expenditure (excluding capital expenditure) wholly and exclusively for maintaining race horses over the stake money received, if any.
What is ‘stake money’ as per this section?
It is the gross amount of prize money received by the owner of race horses for winning a position in a race.
Can the carried forward loss be set off if the assessee discontinues the activity?
No, the activity must be continued in the year of set-off for the loss to be allowed.
Is capital expenditure allowed in computing the loss from the specified activity?
No, only revenue expenditure wholly and exclusively for maintaining race horses is considered.
Can a new owner of race horses claim the carried forward loss of a previous owner?
No, the loss is personal to the assessee and cannot be transferred or inherited.
What happens if the income from specified activity is insufficient in a year to absorb the carried forward loss?
The balance unabsorbed loss can be carried forward to subsequent years, subject to the overall 4-year limit.
Is there any restriction on the quantum of loss that can be carried forward?
No specific monetary restriction is provided, but the loss must be computed as per the provisions of this section.
What if there is no income from specified activity in any of the next four years?
The unabsorbed loss lapses and cannot be carried forward beyond the fourth tax year.
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