Income-tax Act, 1961 · Chapter VI: Aggregation of Income and Set Off or Carry Forward of Loss · Set off, or carry forward and set off
Section 71: Set off of loss from one head against income from another
The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.
In plain words
This section allows a taxpayer to set off a loss from one head of income against income from another head in the same assessment year. It restricts how losses from Capital gains, business, and house property can be used. These rules determine the final taxable income for the year.
- A loss from any head other than Capital gains can be set off against other income if the assessee has no Capital gains income.
- If the assessee has Capital gains income, a loss from other heads can be set off against any income, including Capital gains.
- A loss from Profits and gains of business or profession cannot be set off against Salaries.
- A loss from Capital gains cannot be set off against income from any other head.
- A loss from Income from house property cannot be set off against other income to the extent the loss exceeds two lakh rupees.
- For assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, house property loss is first set off under sub-sections (1) and (2).
- After the initial set off, the remaining house property loss is set off in the relevant assessment year in accordance with section 71A.
A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.
Official text
(1) Where in respect of any assessment year the net result of the computation under any head of income, other than —Capital gains‖, is a loss and the assessee has no income under the head —Capital gains‖, he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than —Capital gains‖, is a loss and the assessee has income assessable under the head —Capital gains‖, such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head —Capital gains‖ (whether relating to short-term capital assets or any other capital assets). [(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head —Profits and gains of business or profession‖ is a loss and the assessee has income assessable under the head —Salaries‖, the assessee shall not be entitled to have such loss set off against such income.]
(3) Where in respect of any assessment year, the net result of the computation under the head —Capital gains‖ is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.] [(3A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head —Income from house property‖ is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to set off such loss, to the extent the amount of the loss exceeds two lakh rupees, against income under the other head.] [(4) Where the net result of the computation under the head —Income from house property‖ is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71A shall be set off in the relevant assessment year in accordance with the provisions of that section.]
Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.