By Riju Mehta

Copyright indiatimes

If a taxpayer suffers losses in a given financial year through business, trading, investments, etc., the income tax laws offer relief to him by mitigating these losses. By setting off and carrying forward losses, you can bring down the taxable income and reduce the payable tax.Income Tax GuideIncome Tax Slabs FY 2025-26Income Tax Calculator 2025New Income Tax Bill 2025SETTING OFF LOSSESSetting off means you can adjust your losses in a particular financial year against profits from that year or subsequent years in the future. The losses can be incurred through various sources, such as business or profession, sale of capital assets, speculative or specified business, residential property, owning or maintaining race horses, depreciation, etc. However, if a particular type of income, such as agricultural income, is exempt from tax, any loss from this source cannot be set off against profits from any other taxable income.There are also rules that allow you to set off losses from an income head only against a specific income head. Depending on the income head, setting off can be classified into two types—intra-head and inter-head.Intra-head setting off: If a taxpayer incurs loss from any source under a particular head of income, he can adjust it against income from a source under the same head. For instance, long-term capital losses can be set off only against long-term capital gains, not against gains from a property.Inter-head setting off: If a taxpayer incurs loss from any source under a particular head of income, he can adjust it against income source from a different head. For instance, losses from residential property can be adjusted against income from any other source up to Rs.2 lakh in the old tax regime.CARRYING FORWARD LOSSESIf you have exhausted all intrahead and inter-head options for adjusting losses against gains in a particular financial year, and are still left with some unadjusted losses, you can carry these forward to the next few years. The period in which the losses can be carried forward varies for different heads of income sources. For instance, capital losses can be carried forward up to eight assessment years from the assessment year in which the loss was incurred, whereas losses from a speculative business can be carried forward against income from a speculative business only for four years.Remember, however, that you can carry forward your losses to subsequent years only if you have filed your income tax returns before the due date.