Section 74: Carry forward and Set off of Losses under the head “Capital gains”

Carry forward of losses:

After making the appropriate and permissible intra-head and inter-head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years.

Capital Losses:

• Can be carry forward up to next 8 assessment years from the assessment year in which the loss was incurred
• Long-term capital losses can be adjusted only against long-term capital gains.
• Short-term capital losses can be set off against long-term capital gains as well as short-term capital gains
• Cannot be carried forward if the return is not filed within the original due date

Section 74 of the Income Tax Act: Losses under the head “Capital gains”:

(1) Where in respect of any assessment year, the net result of the computation under the head “Capital gains” is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and—

(a)  in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset;

(b)  in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head “Capital gains” assessable for that assessment year in respect of any other capital asset not being a short-term capital asset;

 (c)  if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on.

(2) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

(3) [Omitted by the Finance Act, 2002, w.e.f. 1-4-2003.]