Section 109 — Set off of losses under any other head of income
Old Act equivalent: Section 71 of IT Act 1961 Sub-part: Chapter VII — Set Off, or Carry Forward and Set Off of Losses
Statutory Text
(1) Subject to the provisions of this Chapter, for any tax year, if income computed under any head of income (other than “Capital gains”) is a loss, such loss shall be set off against income of the assessee under any other head, including “Capital gains”, if any, assessable for that tax year, subject to the following conditions:—
(a) loss under the head “Profits and gains of business or profession” shall not be set off against income assessable under the head “Salaries”; and
(b) loss under the head “Income from house property” shall be set off to the extent of Rs. 200000 against income under any other head.
(2) For any tax year, the loss under the head “Capital gains” shall not be set off against income under any other head.
Sub-sections
Sub-section (1)
Inter-head set off: loss under any head (other than capital gains) can be set off against income under any other head, subject to two conditions:
- (a) Business loss CANNOT be set off against salary income
- (b) House property loss — capped at Rs. 2,00,000 against other heads
Sub-section (2)
Capital gains loss CANNOT be set off against income under any other head — it stays within capital gains (see section 108(2)).
Key Structure
- Applies to: All assessees after intra-head set off under section 108
- General rule: Loss under any head (except capital gains) → set off against income under any other head
- Restrictions:
- Business loss vs. Salary: Business/profession loss CANNOT be set off against salary income (clause (a))
- House property loss cap: Maximum Rs. 2,00,000 can be set off against other heads (clause (b)); balance carried forward under section 110
- Capital gains loss: Cannot be set off against any other head (sub-section (2)) — only intra-head set off under section 108
- Monetary limit: Rs. 2,00,000 for house property loss inter-head set off
Cross-References
- s108-setoff-same-head — Section 108: intra-head set off (applied before this section)
- s110-carry-forward-house-property — Section 110: carry forward of house property loss not set off (up to 8 years)
- s111-carry-forward-capital-gains — Section 111: carry forward of capital gains loss
- s112-carry-forward-business-loss — Section 112: carry forward of business loss
- s022-deductions — Section 22: interest deduction creating house property loss
- _index — Salary head (against which business loss cannot be set off)
Amendment Notes
None noted from the extracted pages.
Practical Notes
- The Rs. 2,00,000 cap on house property loss inter-head set off is critical for assessees with large interest deductions on let-out property. The excess loss is carried forward under section 110 for up to 8 years, but can only be set off against future house property income.
- Business loss cannot be set off against salary — this prevents employed persons from sheltering salary income behind business losses.
- Capital gains are fully ring-fenced: capital losses can only be set off against capital gains (section 108(2)), and cannot spill over to other heads (sub-section (2) here).
- The sequence is: (1) intra-head set off (section 108) → (2) inter-head set off (section 109) → (3) carry forward of remaining losses (sections 110–121).
- “Including Capital gains” in sub-section (1) — losses from other heads (e.g., house property, other sources) CAN be set off against capital gains, but not vice versa.