Section 109 of the Income-tax Act, 2025

Section 109 — Set off of losses under any other head of income. Successor to s.71 of the 1961 Act.

Where this section sits

Section 109 is in Chapter VII — Set Off or Carry Forward and Set Off of Losses, which runs from section 108 to section 121.

← Section 108 · Section 110 →

What this section does

Sub-section (1) is the inter-head set-off rule. Subject to the rest of the Chapter, a loss for a tax year under any head other than "Capital gains" is to be set off against the assessee's income under any other head assessable for that year, including "Capital gains" — subject to two conditions. Clause (a): a loss under "Profits and gains of business or profession" shall not be set off against income assessable under "Salaries". Clause (b): a loss under "Income from house property" shall be set off to the extent of Rs. 2,00,000 against income under any other head.

Sub-section (2) closes the door the other way: a loss under "Capital gains" shall not be set off against income under any other head.

Why it is there

Inter-head set-off is the general rule so that a genuine loss in one activity reduces the year's overall income, but three carve-outs limit it: salary cannot be sheltered by business losses, house property losses are capped in amount, and capital losses are quarantined. The traffic is deliberately one-way — other losses may reach capital gains, but capital losses may not reach anything else.

Who it applies to

An assessee with a loss under a head other than "Capital gains" for the tax year
A salaried assessee with a business or professional loss
An assessee with a loss under "Income from house property" or under "Capital gains"

The figures, and what each one turns on

Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.

What	Figure	The condition on it	Where
Cap on inter-head set-off of a house property loss	Rs. 2,00,000	The loss under "Income from house property" is set off only to that extent against income under any other head for the tax year	Sub-section (1)(b)

What this means in practice

The section is three separate blocks, not one rule. What decides real cases is direction: a loss under another head may travel into capital gains, but a capital loss may travel nowhere. The house property cap bites on the inter-head set-off only — the loss "shall be set off to the extent of Rs. 2,00,000 against income under any other head", so the excess simply gets no inter-head relief this year rather than being wiped out by this section. And the whole rule is expressed as subject to the Chapter, so what happens to an unabsorbed loss next is governed elsewhere in Chapter VII.

An example

Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.

An individual has Rs 15 lakh of salary, Rs 4 lakh of business income, a Rs 6 lakh loss under "Income from house property" and a Rs 3 lakh capital loss. Under clause (b) only Rs 2,00,000 of the house property loss goes against other heads. The Rs 3 lakh capital loss cannot touch the salary or the business income at all, under sub-section (2). Had there been a business loss instead, it could have gone against house property or other-sources income but never against the Rs 15 lakh salary, under clause (a).

Where you meet this section

In the set-off schedule of the return, and in an intimation or assessment order reversing a set-off claimed beyond what the section allows — most often a house property loss taken against salary in full rather than to the extent of Rs 2,00,000.

The words themselves

loss under the head "Profits and gains of business or profession" shall not be set off against income assessable under the head "Salaries"

Section 109(1)(a), Income-tax Act, 2025.

loss under the head "Income from house property" shall be set off to the extent of Rs. 200000 against income under any other head

Section 109(1)(b), Income-tax Act, 2025.

the loss under the head "Capital gains" shall not be set off against income under any other head

Section 109(2), Income-tax Act, 2025.

What people get wrong

Setting a house property loss off in full against other heads. Clause (b) caps it at Rs 2,00,000.
Setting a business loss against salary income. Clause (a) forbids it whatever the amounts.
Setting a capital loss against business or other income. Sub-section (2) bars it absolutely.
Assuming capital gains are out of reach of other losses too. Sub-section (1) expressly includes "Capital gains" among the heads a loss from another head may be set against.
Reading the section as free-standing. It opens "Subject to the provisions of this Chapter".

What this replaced

The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.

71 - Set off of loss from one head against income from another

See the full 1961 to 2025 concordance.

Circulars of the Board on this section

A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.

Circular No. 721 — Sections 112, 115A, 115AC, 115AD, 115B and 115BBA 1995-09-13
Circular No. 587 — 479. Whether, where in respect of an assessment year, there is income under a head, the loss, if any, under any other head for tha 1990-12-11

See the circulars index.

Case law carried across

Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 109. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.

Explainers

Setting off and carrying forward losses tagged s.71
I made a loss this year. What can I set it against, and how long can I carry the rest forward?

What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.