Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 113
Section 113: set off and carry forward of speculation-business losses
Section 113 ring-fences losses from a speculation business: they can only be set off against profits of another speculation business, not against other business profits or other heads of income. It also sets a shorter, four-year carry-forward window, and deems certain share-dealing companies to be carrying on a speculation business.
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Need advice on Section 113?
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) Any loss, computed in respect of a speculation business carried on by the assessee shall be set off only against profits and gains of another speculation business.
(2) Where for any tax year, loss computed in respect of a speculation business cannot be wholly set off under sub-section (1), 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 speculation business carried on by him for such 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.
(3) No loss shall be carried forward under this section for more than four tax years immediately succeeding the tax year for which the loss was first computed.
(4) Where any allowance of part thereof under section 33(11) or 45(7) related to the speculation business is to be carried forward, effect shall first be given to the provision of this section.
(5) In this section, where any part of the business of the assessee (being a company) consists of purchase and sale of shares of other companies, then the assessee shall be deemed to be carrying on a speculation business, to the extent to which its business consists of purchase and sale of such shares.
(6) The provisions of sub-section (5) shall not apply to an assessee, being a company, if—
(a) its gross total income consists mainly of income which is chargeable under the heads “Income from house property”, “Capital gains” or “Income from other sources”; or
(b) its principal business is of trading in shares or banking or the granting of loans and advances.
Introduction
Speculation-business loss is ring-fenced to profits of a speculation business and can be carried forward for four succeeding tax years. Section 113 also deems certain company share dealing to be speculative, subject to stated exceptions.
Key takeaways
Speculation-only set-off
A speculation-business loss can be set off only against profit from another speculation business.
Four-year period
The remaining loss may be carried forward for no more than four immediately succeeding tax years.
Set off only against speculation profits
Any loss computed in respect of a speculation business carried on by the assessee can be set off only against profits and gains of another speculation business.
Carry forward of unabsorbed speculation loss
Where the loss cannot be wholly set off in the same tax year, the balance is carried forward to the following tax year and set off against speculation-business profits of that year, and so on if any amount still remains unabsorbed.
No speculation-business loss can be carried forward under this section for more than four tax years immediately succeeding the tax year for 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) relating to the speculation business is to be carried forward, effect is first given to the provisions of this section.
Companies deemed to carry on a speculation business
Where any part of the business of an assessee that is a company consists of the purchase and sale of shares of other companies, that company is deemed to be carrying on a speculation business to the extent its business consists of such share dealing.
This deeming rule does not apply to a company whose gross total income consists mainly of income chargeable under the heads "Income from house property", "Capital gains" or "Income from other sources", or whose principal business is trading in shares, banking, or the granting of loans and advances.
Step-by-step flow for applying Section 113
- 1
Is the loss from a speculation business?
For a company, check Section 113(5): to the extent its business consists of purchase and sale of shares of other companies, it is deemed to carry on a speculation business - unless Section 113(6) applies (gross total income mainly from house property, capital gains or other sources, or principal business of trading in shares, banking or granting loans and advances).
- No: Use Sections 108, 109 and 112 for an ordinary business loss.
- Yes: Go to the next step.
- 2
Same-year set-off
Set off only against profits and gains of another speculation business (Section 113(1)).
- 3
Is any loss still unabsorbed?
- No: Nothing to carry forward.
- Yes: Carry forward and set off only against speculation business profits of later years (Section 113(2)).
- 4
Has the four-year window expired?
No loss is carried forward for more than four tax years immediately succeeding the tax year in which it was first computed (Section 113(3)).
Practical checklist
Do
- Separate speculative and ordinary business ledgers and tag each loss by originating tax year.
- For company share trading, test the deemed-speculation rule and its gross-income or principal-business exceptions.
Avoid
- Do not use speculation loss against ordinary business profit.
- Do not carry a loss beyond four succeeding tax years.
Illustrative example
Worked example: ring-fenced speculation loss
Hypothetical facts (illustration only, not a real taxpayer): In Tax Year 1, Mr. Bose has a loss of ₹1,20,000 from one speculation business, a profit of ₹20,000 from another speculation business and a profit of ₹6,00,000 from his regular trading business. In Tax Year 2 his speculation profit is ₹70,000.
Tax Year 1 set-off
Set off ₹20,000 of speculation profit: ₹1,20,000 - ₹20,000 = ₹1,00,000 unabsorbed. The ₹6,00,000 regular business profit cannot absorb it.
Tax Year 2
Set off against speculation profit of ₹70,000: ₹1,00,000 - ₹70,000 = ₹30,000 carried forward.
Later years
The ₹30,000 can be used only against speculation profits and only up to Tax Year 5 (four tax years immediately succeeding Tax Year 1).
Outcome
- Regular business profit of ₹6,00,000 stays fully taxable in Tax Year 1.
- ₹30,000 speculation loss remains to be carried forward, lapsing if not used by Tax Year 5.
Glossary
- Speculation business
- A business falling within the Act's speculative-transaction or deemed share-trading rules.
- Ring-fenced loss
- A loss usable only against profit from the same specified category.
Frequently asked questions
Can a speculation-business loss be set off against normal business profit?
No - Section 113 restricts a speculation-business loss to being set off only against profits of another speculation business.
How long can a speculation loss be carried forward?
For a maximum of four tax years immediately succeeding the tax year in which it was first computed - shorter than the eight-year window for ordinary business losses under Section 112.
Is every company dealing in shares treated as running a speculation business?
Not automatically. The deeming rule is excluded for a company whose gross total income mainly comprises house property, capital gains or other-sources income, or whose principal business is share trading, banking, or granting loans and advances.
Need help applying this provision to your situation?
Get help classifying and carrying forward speculation lossesLast updated 9 October 2026