Set-Off and Carry-Forward of Losses: Rules for AY 2026-27
Last verified: June 2026, against the Income Tax Act provisions and Budget 2025 announcements cited below. Figures apply to FY 2025-26 (AY 2026-27). This is general information, not personal tax advice.
If you made a loss on shares, your house property, or your F&O trades, the tax law lets you set it off against other income and, where you can’t use it fully, carry it forward to future years. Used correctly, this can cut your tax bill substantially. But the rules differ by type of loss — and you can lose the benefit entirely if you file late.
The two-step set-off order
Step 1 — intra-head: a loss is first set off against income within the same head (e.g. one business loss against another business profit). Step 2 — inter-head: any remaining loss is set off against income under other heads, subject to restrictions below. Whatever still can’t be absorbed is carried forward.
Capital losses
- Short-term capital loss (STCL) can be set off against both short-term and long-term capital gains.
- Long-term capital loss (LTCL) can be set off only against long-term capital gains.
- Capital losses cannot be set off against salary or any other head — only against capital gains.
- Unabsorbed capital losses carry forward for 8 assessment years.
See our tax-loss harvesting guide for how investors use this deliberately near year-end.
House property loss
A loss from house property (most often home-loan interest exceeding rental income) can be set off against other heads — but only up to ₹2,00,000 per year. Any excess carries forward for 8 years, and in those later years can be set off only against house-property income. Related: income from house property and home-loan tax benefits.
Business losses, including F&O
- Normal (non-speculative) business loss — including F&O trading, which is treated as non-speculative business — can be set off against any head except salary, and carried forward 8 years (then only against business income).
- Speculative business loss (e.g. intraday equity) can be set off only against speculative gains, and carried forward only 4 years.
Summary table
| Loss type | Set off against | Carry forward |
|---|---|---|
| Short-term capital loss | STCG & LTCG | 8 years |
| Long-term capital loss | LTCG only | 8 years |
| House property loss | Any head, max ₹2L/yr | 8 years (HP only) |
| Non-speculative business (incl. F&O) | Any head except salary | 8 years (business only) |
| Speculative (intraday) | Speculative gains only | 4 years |
The deadline rule that catches people out
To carry forward most losses (capital, business, speculative), you must file your ITR on or before the due date. File a belated return and you forfeit the right to carry those losses forward. The one exception is house-property loss, which can be carried forward even with a belated return. Losses must also be reported in the correct ITR schedule — usually ITR-2 or ITR-3.
FAQs
Can I set off share losses against my salary?
No. Capital losses can only be set off against capital gains, never against salary.
Can F&O losses reduce my salary tax?
F&O is non-speculative business income, so its loss can be set off against other income such as interest or rent — but not against salary. Unused amounts carry forward 8 years.
What happens if I file late?
You lose the right to carry forward capital, business and speculative losses. Only house-property loss survives a belated return.
How long can losses be carried forward?
Eight assessment years for capital, house-property and normal business losses; four years for speculative losses.
