Section 115 — Set off and carry forward of losses from specified activity. Successor to s.74A of the 1961 Act.
Section 115 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) confines a loss incurred in the specified activity in any tax year: it can be set off only against income from the specified activity. Sub-section (2) provides for carry forward where the loss cannot be wholly set off in the year, the unabsorbed part going to the following tax year to be set off against income of the specified activity carried on by the assessee in that year, and any remaining balance being carried forward again to the following year and so on.
Sub-section (3) caps that carry forward: no loss may be carried forward under the section for more than four tax years immediately succeeding the tax year for which the loss was first computed.
Sub-section (4) defines the terms. "Horse race" means a horse race on which wagering or betting may lawfully be made. "Income by way of stake money" means the gross amount of prize money received by the owner on a race horse or race horses on account of a horse winning a particular position in a horse race. "Loss incurred by the assessee in specified activity" means the amount by which the income by way of stake money falls short of the expenditure, not being capital expenditure, incurred wholly and exclusively for maintaining race horses. "Race horses" means horses owned and maintained by the assessee for running in a horse race, and "specified activity" means the activity of owning and maintaining race horses.
Maintaining race horses reliably costs more than it earns, so an unrestricted loss would be a standing deduction against unrelated income. The section quarantines the activity: its losses can only meet its own income, and only for four years, so the cost of a private pursuit is not spread across a taxpayer's business or salary.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Maximum carry forward of a loss from the specified activity | Not more than four tax years | Counted from the tax year immediately succeeding the tax year for which the loss was first computed | Sub-section (3) |
| Measure of the loss | The shortfall of stake money income against expenditure | Expenditure not being capital expenditure, incurred wholly and exclusively for maintaining race horses | Sub-section (4)(c) |
Both the set off in the year and the carry forward are locked to the same activity: sub-section (1) says only against income from specified activity, and sub-section (2)(i) repeats the restriction for the carried forward loss, so there is no point at which the loss becomes available generally. The measure of the loss in sub-section (4)(c) excludes capital expenditure, so the cost of buying a horse is not part of it — only revenue expenditure of maintaining race horses counts. "Income by way of stake money" is the gross prize money for winning a position, which means other receipts connected with racing do not automatically become the income the loss can be set against. The four-year limit runs from the year immediately after the loss was first computed, so it does not restart when part of a loss is absorbed.
An individual receives Rs. 12 lakh of stake money in a tax year and spends Rs. 30 lakh of revenue expenditure maintaining his race horses. The loss is Rs. 18 lakh. It cannot be set against his business profits or salary in that year; it waits for stake money income in the four tax years that follow, and whatever is still unabsorbed after the fourth of those years lapses.
You meet this in the schedule of current and brought forward losses in the return, and in an assessment or intimation where the Assessing Officer removes a set off of racing losses against other income, or refuses a carry forward that has run past its fourth year.
Any loss incurred by the assessee in specified activity in any tax year shall be set off only against income from specified activity.
No loss shall be carried forward under this section for more than four tax years immediately succeeding the tax year for which the loss was first computed.
"loss incurred by the assessee in specified activity" means the amount by which the income by way of stake money, if any, falls short of the expenditure, not being capital expenditure, incurred wholly and exclusively for maintaining race horses
See the full 1961 to 2025 concordance.