Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 111
Section 111: carry forward and set off of loss from capital gains
Section 111 governs what happens to a capital gains loss that could not be fully used up in the same tax year under Section 108. It lets the unabsorbed portion carry forward to future years, while preserving the same short-term/long-term distinction that applies to same-year set-off: short-term losses can offset any capital asset gain, but long-term losses can only offset other long-term gains.
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Need advice on Section 111?
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)(a) Where for any tax year, loss computed under the head “Capital gains” cannot be wholly set off against the income under the head “Capital gains” as per section 108, so much of the loss not so set off or the whole loss, as the case may be, shall be carried forward to the following tax year and shall be set off in the following manner— (i) if such loss relates to a short-term capital asset, it shall be set off only against the income under the head “Capital gains”, if any, assessable for that tax year in respect of any other capital asset; (ii) if such loss relates to a long-term capital asset, it shall be set off only against the income under the head “Capital gains”, if any, assessable for that tax year in respect of any other long-term capital asset; and (b) if the loss cannot be wholly so set off under clause (a), the amount of loss not so set off shall be carried forward to the following tax year and so on.
(2) No loss shall be carried forward under this section for more than eight tax years immediately succeeding the tax year for which the loss was first computed.
Introduction
Unused capital loss after current-year Section 108 set-off may move forward for up to eight tax years. A short-term loss can offset gain from any capital asset; a long-term loss is confined to gain from a long-term asset.
Key takeaways
Capital-loss carry-forward
A remaining short-term capital loss can offset future gain on another capital asset; a long-term capital loss can offset only future long-term capital gain.
Eight-year period
The loss cannot be carried forward for more than eight tax years following the year it first arose.
Carrying the loss forward
Where a loss computed under 'Capital gains' for a tax year cannot be wholly set off against capital gains income as per Section 108, the unabsorbed loss (whether partly or wholly unabsorbed) is carried forward to the following tax year and set off as follows: a loss relating to a short-term capital asset is set off only against capital gains income for that year from any other capital asset; a loss relating to a long-term capital asset is set off only against capital gains income for that year from any other long-term capital asset.
If the loss cannot be wholly set off in that manner, the remaining unabsorbed amount is carried forward again to the next tax year, and so on.
The eight-year time limit
No loss can be carried forward under this section for more than eight tax years immediately following the tax year in which the loss was first computed.
Maintain separate loss pools
Record short-term and long-term losses by originating tax year. This preserves the different eligible gains and each loss's eight-year expiry date.
Step-by-step flow for applying Section 111
- 1
Is there a capital loss left after same-year set-off under Section 108?
- No: Section 111 is not needed.
- Yes: Carry the unabsorbed loss forward and go to the next step.
- 2
Does the brought-forward loss relate to a short-term or long-term capital asset?
- Short-term: Set off only against capital gains of that year from any other capital asset (Section 111(1)(a)(i)).
- Long-term: Set off only against capital gains of that year from any other long-term capital asset (Section 111(1)(a)(ii)).
- 3
Is any balance still unabsorbed?
Carry it to the following tax year and so on (Section 111(1)(b)). It can never be set off against other heads.
- 4
Has the eight-year window expired?
No loss is carried forward for more than eight tax years immediately succeeding the tax year in which it was first computed (Section 111(2)).
Practical checklist
Do
- Use eligible same-year capital gains under Section 108 before carrying any balance forward.
- Track each loss's year of origin, term and remaining balance.
Avoid
- Do not set carried-forward capital loss against income outside the capital-gains head.
- Do not carry a loss beyond eight succeeding tax years.
Illustrative example
Worked example: separate short-term and long-term loss pools
Hypothetical facts (illustration only, not a real taxpayer): After Section 108 set-off in Tax Year 1, Ms. Joshi has an unabsorbed long-term capital loss of ₹4,00,000 and an unabsorbed short-term capital loss of ₹1,00,000. In Tax Year 2 she has a short-term capital gain of ₹1,50,000 and a long-term capital gain of ₹2,50,000.
Long-term pool
The ₹4,00,000 long-term loss can be set off only against the ₹2,50,000 long-term gain. Balance carried forward: ₹4,00,000 - ₹2,50,000 = ₹1,50,000.
Short-term pool
The ₹1,00,000 short-term loss can be set off against any capital gain. Set against the short-term gain: ₹1,50,000 - ₹1,00,000 = ₹50,000.
Capital gains for Tax Year 2
Short-term ₹50,000; long-term nil.
Check
Gains ₹4,00,000 less losses used ₹3,50,000 (₹2,50,000 + ₹1,00,000) = ₹50,000.
Outcome
- Taxable capital gains in Tax Year 2: ₹50,000 (short-term).
- Long-term loss of ₹1,50,000 carries to Tax Year 3, still subject to the eight-year limit counted from Tax Year 1.
- The long-term loss could not have been used against the short-term gain.
Glossary
- Short-term loss pool
- Unused loss on short-term capital assets that may offset gain on any capital asset under this provision.
- Long-term loss pool
- Unused loss on long-term capital assets that may offset only long-term capital gains.
Frequently asked questions
Can a carried-forward long-term capital loss be set off against short-term gains?
No - Section 111(1)(a)(ii) restricts a carried-forward long-term capital asset loss to being set off only against income from another long-term capital asset.
Can a carried-forward short-term capital loss be set off against long-term gains?
Yes - Section 111(1)(a)(i) allows a carried-forward short-term capital asset loss to be set off against capital gains income from any other capital asset, whether short-term or long-term.
How long can a capital gains loss be carried forward?
Up to eight tax years immediately following the tax year in which the loss was first computed.
Need help applying this provision to your situation?
Get help planning your capital loss carry-forwardLast updated 9 October 2026