Section 111 — Carry forward and set off of loss from Capital gains. Successor to s.74 of the 1961 Act.
Section 111 is in Chapter VII — Set Off or Carry Forward and Set Off of Losses, which runs from section 108 to section 121.
Sub-section (1)(a) takes a loss computed under the head "Capital gains" that could not be wholly set off against capital gains income under section 108 and carries it to the following tax year, where the set-off is split by the type of asset the loss came from: a loss on a short-term capital asset can be set off against income under the head "Capital gains" from any other capital asset, while a loss on a long-term capital asset can be set off only against capital gains from another long-term capital asset. Clause (b) carries any still-unabsorbed balance to the next tax year, and so on. Sub-section (2) caps the whole exercise at eight tax years immediately succeeding the tax year in which the loss was first computed.
It keeps capital losses inside the capital gains head rather than letting them shelter other income, and preserves the long-term/short-term distinction on the way forward so that a long-term loss cannot be used against a short-term gain taxed differently. The eight-year cap puts an end date on the carry forward.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Maximum carry forward period for capital loss | 8 tax years | Counted from the tax years immediately succeeding the tax year for which the loss was first computed | 111(2) |
A capital loss brought forward can only ever be used against capital gains — there is no route in this section to set it against business income, salary or other sources. Keep the short-term and long-term buckets separate in your records, because a brought-forward long-term loss is dead against a short-term gain, while a short-term loss is flexible within the head. The clock starts from the year the loss was first computed, so a loss computed in one tax year is available in the next eight and lapses after that.
A firm computes a long-term capital loss of Rs. 40 lakh in one tax year and has no capital gains that year, so section 108 absorbs nothing and the whole loss is carried forward. In the next year it makes a short-term capital gain of Rs. 30 lakh. It cannot set the brought-forward loss against that gain: sub-section (1)(a)(ii) allows a long-term loss only against capital gains on another long-term capital asset, so the Rs. 30 lakh is taxed in full and the Rs. 40 lakh travels on under clause (b). Had the original loss been on a short-term asset, clause (a)(i) would have allowed it against gains on any other capital asset — and either way sub-section (2) extinguishes whatever is left after the eighth tax year immediately succeeding the year for which the loss was first computed.
In the return of income, in the working of brought-forward and carried-forward losses, and in the intimation or assessment order that restricts the set-off — the usual disputes being a long-term loss claimed against a short-term gain, and a loss carried past the eighth year. No form or authority is named in the section; a loss reaches it only after section 108 has done what it can within the year.
if such loss relates to a long-term capital asset, it shall be set off only against the income under the head "Capital gains", if any, assessable for that tax year in respect of any other long-term capital asset
See the full 1961 to 2025 concordance.
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