Section 113 — Set off and carry forward of losses computed in respect of speculation business. Successor to s.73 of the 1961 Act.
Section 113 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) ring-fences a speculation loss: it can be set off only against the profits and gains of another speculation business. Sub-section (2) carries an unabsorbed speculation loss to the following tax year, where it goes against speculation profits of that year, and any remainder rolls on again; sub-section (3) stops the roll after four tax years immediately succeeding the year the loss was first computed. Sub-section (4) fixes the order where an allowance under section 33(11) or 45(7) relating to the speculation business is also to be carried forward — effect is given to this section first. Sub-sections (5) and (6) contain the deeming rule: a company any part of whose business consists of the purchase and sale of shares of other companies is deemed to carry on a speculation business to that extent, unless its gross total income consists mainly of income under "Income from house property", "Capital gains" or "Income from other sources", or its principal business is trading in shares, or banking, or the granting of loans and advances.
Speculation losses are quarantined so they cannot be used to reduce ordinary business profits, and the shorter four-year carry forward limits how long that quarantined loss survives. The deeming rule in sub-section (5) reaches companies that deal in other companies' shares as part of a wider business, with sub-section (6) releasing those whose income is mainly passive or whose principal business is share trading, banking or lending.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Maximum carry forward period for a speculation loss | 4 tax years | Counted from the tax years immediately succeeding the tax year for which the loss was first computed | 113(3) |
A speculation loss is useless against anything except speculation profits, in the year of the loss and in each of the next four years, after which it lapses — a materially shorter window than for ordinary business losses. If you are a company that buys and sells shares of other companies as part of a wider business, check sub-section (6) before treating that activity as ordinary business: unless you fall in one of the two exclusions, the share dealing is deemed speculation to that extent and its losses are trapped. Where the same speculation business also has an allowance carried forward under section 33(11) or 45(7), set off the speculation loss under this section before giving effect to that allowance.
A firm's speculation business shows a loss of Rs. 40 lakh in a tax year while its ordinary trading business is in profit; sub-section (1) refuses that set-off outright, and if a second speculation business earned Rs. 10 lakh only that much is absorbed. The remaining Rs. 30 lakh is carried forward against speculation profits alone, and whatever survives after the fourth tax year immediately succeeding the year the loss was first computed lapses under sub-section (3) — four years, not the longer period allowed elsewhere. For a company the problem can start earlier: if part of its business is the purchase and sale of shares of other companies, sub-section (5) deems that part a speculation business, unless sub-section (6) releases it because its gross total income is mainly from house property, capital gains or other sources, or its principal business is trading in shares, banking or the granting of loans and advances.
In the loss schedules of the return, and in the assessment order or intimation that refuses a set-off against ordinary business profits or drops a loss that has run past its fourth year. No form or authority is named; the argument in a company's case is usually whether sub-section (5) deems part of its share dealing to be speculation.
Any loss, computed in respect of a speculation business carried on by the assessee shall be set off only against profits and gains of another speculation business.
See the full 1961 to 2025 concordance.
See the circulars index.