Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 112
Section 112: carry forward and set off of business loss
Section 112 deals with a loss under the head "Profits and gains of business or profession" (other than a speculation-business loss, which is covered separately) that could not be fully set off against income from other heads in the same tax year under Section 109. It lets the unabsorbed part of that loss be carried forward to future tax years and set off against business profits.
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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) Where for any tax year, loss computed under the head “Profits and gains of business or profession” (not being a loss sustained in a speculation business) cannot be wholly set off against the income under any other head as per section 109, 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— (i) be set off against the profits and gains, if any, of any business or profession carried on by him for that tax year; and (ii) if the loss cannot be wholly so set off, 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.
(3) Where any allowance of part thereof under section 33(11) or 45(7) is to be carried forward, effect shall first be given to the provision of this section.
Introduction
An ordinary business or professional loss that remains after current-year set-off may be used against profits from any business or profession carried on by the same assessee in a later tax year. The carry-forward limit is eight succeeding tax years.
Key takeaways
Ordinary business loss
An unabsorbed non-speculation business loss can be carried forward and set against future profits of any business or profession carried on by the taxpayer.
Eight-year period
The carry-forward ends after eight immediately succeeding tax years.
What Section 112 says
Where a business loss for a tax year cannot be wholly set off against income under any other head as per Section 109, the loss not so set off (or the whole loss, as the case may be) is carried forward to the following tax year.
In the following tax year, the carried-forward loss is set off against the profits and gains of any business or profession carried on by the assessee that year. If it still cannot be wholly set off, the balance is carried forward again to the next tax year, and so on.
Eight-year time limit
A business loss cannot be carried forward under this section for more than eight tax years immediately succeeding the tax year in which the loss was first computed.
Interaction with unabsorbed allowances
Where any allowance (or part of it) under Section 33(11) or Section 45(7) is also to be carried forward, effect is first given to the provisions of Section 112 before those allowances are carried forward.
Separate special losses
This section expressly excludes speculation-business loss. That category follows its own set-off and carry-forward rule in Section 113, so it needs a separate ledger.
Step-by-step flow for applying Section 112
- 1
Is the loss under "Profits and gains of business or profession"?
- No: Use the provision for that head (for example Section 110 or 111).
- Yes: Go to the next step.
- 2
Is it a loss from a speculation business?
- Yes: Excluded from Section 112; apply Section 113.
- No: Go to the next step.
- 3
What remains after current-year set-off under Section 109?
Only the part not set off against other heads (or the whole loss) is carried forward.
- 4
Set off in following years against business or profession profits
The brought-forward loss is set off against profits of any business or profession carried on in that year; any balance moves forward again, for not more than eight tax years after the year the loss was first computed. Where an allowance under Section 33(11) or 45(7) is also carried forward, effect is first given to Section 112 (Section 112(3)).
Practical checklist
Do
- Compute current-year permitted set-off under Section 109 before recording a carry-forward balance.
- Separate ordinary business loss from speculation and track the eight-year expiry.
Avoid
- Do not use the carried-forward ordinary business loss against non-business income.
- Do not treat Section 112 as the rule for speculation-business losses.
Illustrative example
Worked example: business loss used over three years
Hypothetical facts (illustration only, not a real taxpayer): In Tax Year 1, Mr. Nair's business loss (not a speculation loss) is ₹10,00,000. He also has rental income of ₹4,00,000 that year. His business profits are ₹3,50,000 in Tax Year 2 and ₹4,00,000 in Tax Year 3. He also earns a salary in each year.
Tax Year 1
Under Section 109, set off ₹4,00,000 against rental income (not against salary). Carried forward: ₹10,00,000 - ₹4,00,000 = ₹6,00,000.
Tax Year 2
Set off ₹3,50,000 against business profits. Carried forward: ₹6,00,000 - ₹3,50,000 = ₹2,50,000. The salary cannot absorb the brought-forward loss.
Tax Year 3
Set off ₹2,50,000 against business profits of ₹4,00,000. Taxable business income: ₹1,50,000. No loss left.
Time limit check
All set-offs occur within eight tax years immediately succeeding Tax Year 1.
Outcome
- Loss of ₹10,00,000 absorbed: ₹4,00,000 (Year 1), ₹3,50,000 (Year 2), ₹2,50,000 (Year 3).
- The brought-forward loss can be used against profits of any business or profession he carries on in the later year.
Glossary
- Ordinary business loss
- Business or professional loss other than a loss sustained in a speculation business.
- Unabsorbed depreciation
- A separate carried-forward allowance whose ordering interacts with the business-loss rule.
Frequently asked questions
For how many years can a business loss be carried forward under Section 112?
For a maximum of eight tax years immediately following the tax year in which the loss was first computed.
Can a carried-forward business loss be set off against salary income?
Section 112 only allows the carried-forward loss to be set off against profits and gains of a business or profession in the following tax year(s) - it does not extend to other heads of income.
Does Section 112 apply to speculation-business losses?
No - a loss from a speculation business is dealt with separately under Section 113, not under Section 112.
Need help applying this provision to your situation?
Plan your business loss carry-forward with our tax teamLast updated 9 October 2026