Section 108
Section 108: set off of losses under same head of income
Section 108 opens the Act's chapter on set-off and carry-forward of losses. It lays down the basic rule that a loss from one source can be set off against income from another source under the same head of income in the same tax year, and then adds a specific restriction for capital gains: short-term capital losses can only be set off against other capital asset gains, while long-term capital losses can only be set off against other long-term capital asset gains.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
The general same-head set-off rule
Unless the Act provides otherwise, if the net result of computation from any source under any head of income (other than 'Capital gains') is a loss for a tax year, the assessee can set off that loss against income from any other source under the same head for that tax year.
Special rule for capital gains
Where the net result of computing income for a tax year under Sections 72 to 90 (the capital gains computation provisions) shows a loss on any short-term capital asset, that loss can be set off against income computed on any other capital asset for that year.
Where the net result shows a loss on any long-term capital asset, that loss can only be set off against income computed on any other long-term capital asset for that year - it cannot be set off against short-term capital gains.
Frequently asked questions
Can a business loss be set off against rental income in the same year?
Section 108 allows a loss from one source to be set off against income from another source under the same head of income - so a loss from one business can be set off against profit from another business, for example, but this section does not cover cross-head set-off (that is dealt with separately).
Can a long-term capital loss be set off against a short-term capital gain?
No - Section 108(2) restricts a long-term capital asset loss to being set off only against income from another long-term capital asset in the same year.
Can a short-term capital loss be set off against a long-term capital gain?
Yes - Section 108(2)(a) allows a short-term capital asset loss to be set off against income computed in respect of any other capital asset (short-term or long-term) for that year.
Related sections
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Get help planning your loss set-off strategyLast updated 9 September 2026