Chapter VII - Set Off, or Carry Forward and Set Off of Losses
Section 115
Section 115: set off and carry forward of losses from specified activity (race horses)
Section 115 applies specifically to the activity of owning and maintaining race horses, which the section calls "specified activity". A loss from this activity can only be set off against income from the same activity, and can be carried forward for a maximum of four tax years.
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Need advice on Section 115?
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 incurred by the assessee in specified activity in any tax year shall be set off only against income from specified activity.
(2) Where for any tax year, loss computed in respect of a specified activity 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 income, if any, of the specified activity 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) For the purposes of this section—
(a) “horse race” means a horse race upon which wagering or betting may be lawfully made;
(b) “income by way of stake money” means the gross amount of prize money received on a race horse or race horses by the owner thereof on account of the horse or horses or any one or more of the horses winning a particular position in horse race;
(c) “loss incurred by the assessee in specified activity” means the amount by which the income by way of stake money, if any, falls short of the expenditure, not being capital expenditure, incurred wholly and exclusively for maintaining race horses;
(d) “race horses” means horses owned and maintained by assessee for running in a horse race;
(e) “specified activity” means the activity of owning and maintaining race horses.
Introduction
Section 115 ring-fences losses from owning and maintaining race horses to income from that activity. Unused losses may move forward only for four succeeding tax years, and the section defines relevant stake money and expenses.
Key takeaways
Horse-race activity
A loss from owning and maintaining race horses is ring-fenced to income from the same specified activity.
Four-year limit
Unabsorbed loss can be carried forward for at most four immediately succeeding tax years.
Set off only against income from the same activity
Any loss incurred by the assessee in a specified activity in a tax year can be set off only against income from that specified activity.
Carry forward, and the four-year limit
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 income from the specified activity carried on in that year, and so on if any amount still remains unabsorbed.
No such 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.
Key definitions
The section defines several terms specific to this activity:
- "Horse race" means a horse race upon which wagering or betting may be lawfully made.
- "Income by way of stake money" means the gross amount of prize money received on a race horse or race horses by the owner on account of the horse(s) winning a particular position in a horse race.
- "Loss incurred by the assessee in specified activity" means the amount by which the income by way of stake money, if any, falls short of the expenditure (not being capital expenditure) incurred wholly and exclusively for maintaining race horses.
- "Race horses" means horses owned and maintained by the assessee for running in a horse race.
- "Specified activity" means the activity of owning and maintaining race horses.
Step-by-step flow for applying Section 115
- 1
Does the assessee own and maintain race horses?
"Specified activity" means owning and maintaining race horses, i.e. horses owned and maintained for running in a horse race on which wagering or betting may lawfully be made.
- No: Section 115 does not apply.
- Yes: Go to the next step.
- 2
Compute the loss for the tax year
Loss = amount by which stake money (gross prize money received as owner) falls short of expenditure, other than capital expenditure, incurred wholly and exclusively for maintaining the race horses (Section 115(4)(c)).
- 3
Set off only against income from the specified activity
Same year first (Section 115(1)); the balance is carried forward and set off only against income from the specified activity of later years (Section 115(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 115(3)).
Practical checklist
Do
- Keep horse ownership, race winnings and wholly activity-related maintenance spending by tax year.
- Use the loss only against income from the specified race-horse activity and track its four-year expiry.
Avoid
- Do not offset race-horse loss against unrelated betting or business income.
- Do not include capital expenditure in the specified loss calculation.
Illustrative example
Worked example: race-horse loss and its later use
Hypothetical facts (illustration only, not a real taxpayer): In Tax Year 1, Mr. Singh receives stake money of ₹6,00,000. He spends ₹9,00,000 wholly and exclusively on maintaining his race horses (feed, training, stabling) and separately ₹15,00,000 to buy a new horse. In Tax Year 2 his stake money is ₹10,00,000 and maintenance expenditure ₹8,20,000.
Tax Year 1 loss
The ₹15,00,000 purchase is capital expenditure and is excluded. Loss = ₹9,00,000 - ₹6,00,000 = ₹3,00,000.
Tax Year 1 set-off
No other income from the specified activity, so the whole ₹3,00,000 is carried forward. It cannot reduce his other income.
Tax Year 2
Income from the specified activity = ₹10,00,000 - ₹8,20,000 = ₹1,80,000. Set off ₹1,80,000: balance carried forward ₹3,00,000 - ₹1,80,000 = ₹1,20,000.
Time limit
The remaining ₹1,20,000 can be carried forward only up to Tax Year 5 (four tax years immediately succeeding Tax Year 1).
Outcome
- Tax Year 2 race-horse income after set-off: nil.
- ₹1,20,000 loss carried forward, usable only against future race-horse income.
Glossary
- Stake money
- Gross prize money received by the owner because a race horse wins a qualifying position.
- Specified activity
- Owning and maintaining race horses for running in horse races.
Frequently asked questions
What is the "specified activity" under Section 115?
It means the activity of owning and maintaining race horses.
Against what can a race-horse loss be set off?
Only against income from the specified activity itself (i.e. stake money from race horses) - it cannot be set off against other business income or other heads.
How long can this loss be carried forward?
For a maximum of four tax years immediately succeeding the tax year for which the loss was first computed.
Need help applying this provision to your situation?
Talk to our tax team about race-horse activity lossesLast updated 9 October 2026