Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 109
Section 109: set off of losses under any other head of income
Section 109 extends loss set-off beyond a single head of income: after Section 108 handles set-off within the same head, this section allows a residual loss under one head to be set off against income under a different head in the same tax year - subject to three important restrictions.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Subject to the provisions of this Chapter, for any tax year, if income computed under any head of income (other than “Capital gains”) is a loss, such loss shall be set off against income of the assessee under any other head, including “Capital gains”, if any, assessable for that tax year, subject to the following conditions:— (a) loss under the head “Profits and gains of business or profession” shall not be set off against income assessable under the head “Salaries”; and (b) loss under the head “Income from house property” shall be set off to the extent of ₹ 200000 against income under any other head.
(2) For any tax year, the loss under the head “Capital gains” shall not be set off against income under any other head.
Introduction
After same-head adjustment, Section 109 regulates current-year set-off between income heads. Business loss cannot reduce salary, house-property loss has a ₹2 lakh other-head cap, and capital loss cannot cross into another head.
Key takeaways
Across-head set-off
A loss under an income head other than capital gains can generally be set against income under another head in the same tax year, subject to this Chapter.
Specific limits
Business loss cannot offset salary, house-property loss is capped at ₹2,00,000 for across-head set-off, and capital loss cannot offset another income head.
The general cross-head set-off rule
Subject to the rest of this Chapter, if income computed under any head of income (other than 'Capital gains') is a loss for a tax year, that loss can be set off against the assessee's income under any other head, including 'Capital gains', assessable for that tax year - subject to the conditions below.
Two conditions on cross-head set-off
- A loss under "Profits and gains of business or profession" cannot be set off against income assessable under the head "Salaries"
- A loss under "Income from house property" can be set off against income under any other head only up to ₹2,00,000
Capital gains losses cannot be set off against other heads
For any tax year, a loss under the head 'Capital gains' cannot be set off against income under any other head - it stays confined to being set off against capital gains income only (as governed by Section 108(2) and Section 111).
Keep the restrictions separate
The ₹2 lakh limit concerns house-property loss used against income under another head. The capital-loss prohibition is absolute for cross-head set-off under this section, while business loss has a salary-specific restriction.
Step-by-step flow for applying Section 109
- 1
After same-head set-off under Section 108, is there a loss under any head?
- No: No inter-head set-off is needed.
- Yes: Go to the next step.
- 2
Is it a loss under "Capital gains"?
- Yes: It cannot be set off against any other head (Section 109(2)); consider carry forward under Section 111.
- No: Go to the next step.
- 3
Is it a business or profession loss?
- Yes: Set off against any other head, including capital gains, except "Salaries" (Section 109(1)(a)).
- No: Go to the next step.
- 4
Is it a house property loss?
Set off against income under any other head only up to ₹2,00,000 (Section 109(1)(b)). Any unabsorbed balance of a house property loss moves to Section 110; of a business loss, to Section 112.
Practical checklist
Do
- Apply same-head set-off first and show any remaining loss by income head.
- Cap current-year house-property loss used against other heads at ₹2 lakh.
Avoid
- Do not use capital loss against salary, business or other-sources income.
- Do not offset business loss against salary income.
Illustrative example
Worked example: salary, business loss and house property loss in one year
Hypothetical facts (illustration only, not a real taxpayer): Ms. Kapoor has, after any same-head set-off: salary ₹12,00,000; loss from business ₹3,00,000; loss from house property ₹2,50,000; short-term capital gain ₹1,00,000; interest taxable as income from other sources ₹1,50,000.
House property loss
Only ₹2,00,000 can be set off against other heads. Setting it off against salary: ₹12,00,000 - ₹2,00,000 = ₹10,00,000. Unabsorbed ₹50,000 is carried forward under Section 110.
Business loss
It cannot be set off against salary. Set off against other sources ₹1,50,000 and capital gains ₹1,00,000 = ₹2,50,000 absorbed. Unabsorbed ₹50,000 (₹3,00,000 - ₹2,50,000) is carried forward under Section 112.
Heads after set-off
Salary ₹10,00,000; income from other sources nil; capital gains nil.
Check
Positive income ₹14,50,000 (₹12,00,000 + ₹1,00,000 + ₹1,50,000) less losses set off ₹4,50,000 (₹2,00,000 + ₹2,50,000) = ₹10,00,000.
Outcome
- Income after inter-head set-off: ₹10,00,000.
- Carried forward: house property loss ₹50,000 (Section 110) and business loss ₹50,000 (Section 112).
- Had there been a capital loss, it could not have reduced any of the other heads.
Glossary
- Other-head set-off
- Current-year adjustment of a loss against assessable income under a different income head.
- House-property cap
- The ₹2 lakh ceiling on house-property loss set off against income under any other head.
Frequently asked questions
Can a business loss reduce my salary income?
No - Section 109(1)(a) specifically bars setting off a loss under "Profits and gains of business or profession" against income assessable under "Salaries".
Is there a limit on setting off a house property loss against other income?
Yes - a loss under "Income from house property" can be set off against income under any other head only up to ₹2,00,000 in a tax year.
Can a capital gains loss be set off against my salary or business income?
No - Section 109(2) bars setting off a capital gains loss against income under any other head for that tax year.
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Get help planning your loss set-off strategyLast updated 9 October 2026