If a loss cannot be setoff after all Inter Source & Inter Head Adjustments, then such loss can be carried forward to future years subject to the following exceptions:

1. Carry forward of Loss under Income from House Property [Sec. 71B]

•  Such loss can be carried forward up to EIGHT assessment years.

• Loss under Income from House Property in future can be set off only against Income from House property.

2. Carry forward of Loss & Set off of Business loss other than Speculation Loss [Sec. 72]

•  Such loss can be carried forward up to EIGHT assessment years.

• Continuity of Business is not necessary for claiming set off of carried forward losses.

• Losses can be set off only against Income taxed in future years under the head ‘Profits & Gains from Business & Profession’

•  Losses incurred by an assessee can be claimed for set off against future year’s income only by the assessee who has incurred such loss, subject to the following exceptions:

• Inheritance of the loss making business by the assessee’s legal heir, wherein latter will be allowed to set off the losses.

• In case of Amalgamation of a Company, the amalgamated money has the right to get its income set off against the carried forward losses of the amalgamating company.

• In case of Demerger of company, resulting company has the right to get its income set off against the carried forward losses of the Company before demerger, subject to conditions specified by the Central Govt.

• In case of succession of Proprietary concern/ Firm by a company such company has the right to get its income set off against the carried forward losses of the proprietary concern/ firm.  

• Return of Loss should be submitted on/ before the Due date otherwise the loss will not be allowed to be carried forward to future years.

•  In case of an assessee  having three types of NEGATIVE INCOMES, i.e., Current year depreciation, Unabsorbed Depreciation of previous years & Brought forward business losses of previous years to be set off against current year’s Business Income, the following order of priority should be followed:

• First set off current year’s depreciation;

• Secondly set off Brought forward business losses since they can be carried forward only up to 8 assessment years.

• And lastly set off Unabsorbed Depreciation since they can be carried forward to future years without any time limitation.

3. Carry forward and  Set off of Speculation Loss [Sec. 73]

•  Speculative business losses can be set off only against Speculative Income.

• Such losses can be carried forward only up to FOUR assessment years.

• Continuity of Business is not necessary for claiming set off of carried forward losses.

•  Return of Loss should be submitted on/ before the Due date otherwise the loss will not be allowed to be carried forward to future years.  

4. Carry forward and Set off of Capital Loss:

• Long Term capital loss carried forward to future years can be set off only against Long term capital gains, while Short term capital loss can be set off both against Short term as well as Long term capital gains.

• Such loss can be carried forward up to EIGHT assessment years.

• Return of Loss should be submitted on/ before the Due date otherwise the loss will not be allowed to be carried forward to future years. 

5. Carry forward and Set off of loss from the Activity of owning & maintaining race horses [Sec. 74A]

•  Loss can be carried forward only if the activity of owning & maintaining race horses is carried on by the assessee in the previous year in which the brought forward loss is sought to be set off.

• Such loss can be set off only against income from owning & maintaining of race horses.

• Such loss can be carried forward up to FOUR assessment years.

• Return of Loss should be submitted on/ before the Due date otherwise the loss will not be allowed to be carried forward to future years.

• The aforesaid provisions are applicable only in case of loss from the activity of owning & maintaining Race Horses & not any other racing animals. 

6. Loss arising in case of BONUS STRIPPING: 

• Wherein ‘Record date’ means the date as may be fixed by a company/ a mutual fund/ UTI for the entitlement of the holder of securities/ shares/ units to receive dividend.

• If the above conditions are satisfied then:

• The loss, if any, that arises to the taxpayer on account of purchase & sale of all (or any) of the aforesaid original units shall be ignored for the purpose of computing his taxable income.

• The amount of loss so ignored shall be deemed to the cost of purchase/ acquisition bonus units as are held by him on the date of such sale. 

7. Loss arising on sale of shares, securities, or units [Sec. 94(7)]

ILLUSTRATIONS.. For Your better understanding

• Mr. B purchases on Jun 10^th’ 2009, 100 Shares of Rs. 100 each in XYZ Ltd. on @ Rs. 50/-. On August 13^th’ 2009 he sells 30 Shares to his friend @ Rs. 40/- & remaining 70 Shares are sold to his Uncle @ Rs. 30/- on November 7^th’ 2009. XYZ Ltd. declares a dividend @ Rs. 2 per share, Record Date being Jun 27^th’ 2009. During the PY Long term capital gain of Rs. 10,000/-