Loss Set-Off and Carry Forward Calculator for FY 2026-27
Enter your gains and losses head by head, and this tool runs the correct set-off order under both regimes, then shows your taxable income and exactly how much of each loss carries forward, for how long, and when it expires.
Sections 70 to 74 Waterfall: Set-Off Order and Carry Forward
What Set-Off and Carry Forward of Losses Actually Means for You
Income tax in India does not treat all your income as one single pool that gains and losses simply add into. It sorts income into five heads: salary, house property, business or profession, capital gains, and other sources.
When you make a loss under one head, the law lets you soften the blow by adjusting it against income elsewhere, but only in a specific order and subject to restrictions that trip up even experienced taxpayers. Getting this right can legitimately cut your tax bill by tens of thousands of rupees; getting it wrong, or missing a deadline, can throw away a genuine loss forever. For anyone who invests, trades or owns a let-out property, these rules are not an obscure corner of the law but a routine part of getting the annual return right.
It helps to think of the system as a set of sealed compartments with one-way valves between some of them. Salary sits in its own compartment that almost nothing can drain into. Capital gains form another compartment, subdivided into short-term and long-term chambers, where losses can flow downward from short to long but never upward from long to short. Business income is a compartment that can receive losses from most other places but cannot send its losses into salary. Speculative trading is a sealed box that only connects to itself. Once you picture the valves, the rules stop feeling arbitrary and start feeling like plumbing, and the calculator is simply the machine that opens and closes each valve in the correct order for you.
The financial stakes are real and often larger than people assume. A salaried professional who trades on the side can easily accumulate a five or six figure trading loss in a bad year. Handled correctly, that loss offsets other income now or shelters gains for the next eight years. Handled carelessly, misclassified or stranded behind a missed filing deadline, the same loss becomes worthless paper. The difference between those two outcomes is often just knowing which compartment each loss belongs in and filing the return on time, which is precisely what this tool is built to get right.
The process runs in three stages. First comes intra-head set-off: a loss is adjusted against income under the same head.
A loss on one business is set against profit from another business; a short-term capital loss on one stock is netted against a short-term gain on another. Second comes inter-head set-off: any loss still left over is adjusted against income under a different head, but here the restrictions bite hard. Third, whatever loss still remains after both stages is carried forward to future years, where it waits to be set off against the right kind of income, for a limited number of years, before it expires unused.
The restrictions are where the real complexity lives, and they exist for sound policy reasons. A long-term capital loss can only be set off against a long-term capital gain, never a short-term one, because the government taxes the two at different rates and does not want you cherry-picking.
A business loss can be set against almost any income except salary, to stop salaried people from manufacturing paper business losses to wipe out their pay. A speculative loss from intraday trading can only meet a speculative gain, keeping that high-risk activity walled off in its own compartment. Each rule has a logic, but together they form a maze that a simple spreadsheet cannot navigate, because the correct answer depends on applying them in a strict sequence rather than in isolation.
This is exactly the gap this calculator fills. The guides that explain these rules are thorough, but they leave you to hand-trace your own numbers through a dozen paragraphs, and a single misapplied restriction produces a wrong return. Here you enter your actual figures head by head, and the tool executes the correct waterfall, enforcing every silo, showing your taxable income after set-off, and laying out each carried-forward loss with its carry-forward period and its expiry year. For the gains that feed into it, our capital gains calculator works out the gain itself, our options profit and loss calculator and intraday P&L calculator handle the trading figures, and our income tax calculator takes the taxable income from here to your final bill.
The Set-Off Order the Calculator Follows, Step by Step
The tool applies the rules of Sections 70 to 74 in the exact sequence the law prescribes. Understanding this order helps you see why a particular loss did or did not get absorbed.
Net within each head first
Short-term capital loss meets short-term gain, long-term loss meets long-term gain, one business against another. This intra-head netting happens before anything crosses between heads, and it is always allowed.
Apply the capital gains cross-rule
A remaining short-term capital loss can then be set against a long-term gain, because short-term losses are flexible. A long-term capital loss, however, stays locked to long-term gains only and never touches a short-term gain.
Set remaining losses across heads
A business loss is set against any head except salary. A house property loss, in the old regime only, is set against other heads up to ₹2 lakh. Speculative and capital losses cannot cross heads at all and wait to carry forward.
Carry forward whatever remains
Any loss still unabsorbed is carried forward into its own silo, each with its own life: eight years for capital, business and house property losses, but only four years for speculative losses, each expiring in a specific assessment year.
A point worth stressing is what the tool does not do to your salary. In almost every scenario, salary emerges from the waterfall untouched, because the law shields it from business, speculative and capital losses alike. The only loss that can ever reach salary is a house property loss, and even then only in the old regime and only up to ₹2 lakh. This is why a salaried person hoping a big trading loss will slash their salary tax is usually disappointed: the loss is valuable, but it works by sheltering their other income and their future gains, not their pay.
The single most important thing to understand is that carrying a loss forward is not automatic and not free. To carry forward any loss except a house property loss, you must file your income tax return on or before the due date under Section 139(1).
Miss that deadline by even one day and you lose the right to carry those losses forward permanently, no matter how genuine they are. House property loss is the sole exception: it can be carried forward even if you file a belated return. The calculator flags this the moment you have any loss to carry, because a missed deadline is the most common and most painful way people throw away a real tax benefit.
Head-by-Head Rules for Every Type of Loss
Each type of loss has its own set-off scope and carry-forward life. The table below is the complete ruleset the calculator enforces, current for FY 2026-27.
| Loss type | Set off against | Carry forward |
|---|---|---|
| Short-term capital loss | STCG and LTCG | 8 years |
| Long-term capital loss | LTCG only | 8 years |
| Business loss (incl F and O) | Any head except salary | 8 years |
| Speculative loss (intraday) | Speculative gains only | 4 years |
| House property loss (old regime) | Any head, capped ₹2 lakh | 8 years |
| House property loss (new regime) | House property income only | 8 years |
| Special rule | What it means |
|---|---|
| Carry-forward filing | File by the due date, or the right is lost |
| House property exception | Carries forward even on a belated return |
| Lottery and gambling | No loss can be set off against these winnings |
| Race horse losses | Only against race horse income, 4 years |
The distinction between speculative and non-speculative business income deserves special attention because it catches so many traders. The law does not care that both F&O and intraday feel like the same activity to you; it classifies them differently. Futures and options, even though highly leveraged, are treated as a normal non-speculative business, so their losses are relatively flexible and last eight years. Intraday equity, buying and selling the same share the same day without delivery, is speculative, so its losses are stuck meeting only speculative profit and last just four years. A trader who does both must keep two separate ledgers, or risk overstating their flexibility and filing an incorrect return.
These rules come from Sections 70 to 80 of the Income Tax Act, and the framework was carried almost unchanged into the new Income-tax Act, 2025, though the vocabulary shifts from assessment year to tax year. The capital loss rules under Section 74, in particular, remain identical under both the old and new tax regimes, so a stock market loss is treated the same way whichever regime you pick. You can read the official position on the Income Tax Department website, and the detailed provisions are published by the Income Tax Department in the Act itself. The one rule that changes with your regime is the house property inter-head set-off, which the calculator handles automatically when you switch the toggle.
Three Worked Cases Across Mumbai, Delhi and Bengaluru
These three taxpayers show the calculator enforcing the silo rules that people most often get wrong: the capital gains cascade, the business-loss-not-against-salary rule, and the speculative and house property traps together. Each ends with the taxable income and what carries forward.
Meera earns ₹15 lakh in salary and trades shares on the side. This year she has a short-term capital gain of ₹80,000, a short-term capital loss of ₹1,20,000, and a long-term capital gain of ₹50,000.
She files under the new regime. She wonders how her losses will be applied and whether anything survives to reduce her salary. The answer, which surprises many, is that capital losses cannot touch salary at all, so her ₹15 lakh salary is safe from any capital loss no matter how large it grows.
The calculator cascades her ₹1,20,000 short-term loss correctly. First ₹80,000 wipes out the short-term gain entirely. The remaining ₹40,000 of short-term loss is flexible enough to attack the long-term gain, reducing that ₹50,000 gain to just ₹10,000.
So her total taxable capital gain is ₹10,000, and her taxable income is ₹15.1 lakh, her salary plus that small residual gain. Nothing carries forward because every rupee of loss found a matching gain. Had her loss been long-term instead, it could not have touched the short-term gain at all, and the outcome would have been very different.
Rajesh earns ₹8 lakh in salary, ₹1 lakh in fixed deposit interest, and has a long-term capital gain of ₹2 lakh. This year his futures and options trading produced a business loss of ₹3 lakh, since F&O is treated as a non-speculative business, not capital gains.
He files under the old regime and hopes the ₹3 lakh loss will cut his salary tax. It cannot, and understanding why saves him from filing wrongly.
A non-speculative business loss can be set off against any head except salary. So Rajesh’s ₹3 lakh F&O loss is applied first against his ₹1 lakh interest income and then against his ₹2 lakh long-term capital gain, absorbing both completely.
That leaves his ₹8 lakh salary standing fully taxable, because the law expressly bars a business loss from reducing salary. His loss was fully used this year, so nothing carries forward. Crucially, to preserve the right to carry forward any unused F&O loss, he would have had to file his return by the due date, using ITR-3.
Priya earns ₹10 lakh in salary. She also does intraday equity trading, which produced a speculative loss of ₹60,000, and she owns a property whose interest and expenses gave her a house property loss of ₹3 lakh. She files under the old regime. Her case hits two of the most restrictive rules simultaneously, and the calculator separates them cleanly.
Her ₹60,000 intraday loss is speculative, and with no speculative gain this year it cannot be set off against anything, so the whole amount carries forward for just four years to meet future intraday profit.
Her ₹3 lakh house property loss, under the old regime, can be set against her salary but only up to the ₹2 lakh cap, bringing her taxable income to ₹8 lakh; the remaining ₹1 lakh carries forward for eight years against future house property income. Two different losses, two different silos, two different carry-forward lives, all handled at once. If Priya had tried to net her intraday loss against her salary, or to set her full house property loss against her pay, she would have filed an incorrect return; the calculator keeps each within its lawful limit automatically.
Across the three cases the lesson is the same: a loss is only worth what the rules let you do with it. Meera got full value because her losses matched her gains; Rajesh got partial value because his F&O loss could reach everything but his salary; Priya had to park two losses in two separate silos to wait for future income. In every case, knowing the compartment each loss belongs in, and filing on time to preserve the carry-forward, was the difference between a live tax asset and a dead one. That is the calculation this tool performs in a second, where doing it by hand invites exactly the classification errors that cost money.
Expert Tips to Use Every Rupee of Loss Lawfully
A loss is a genuine tax asset if you handle it correctly. These habits, drawn from how careful taxpayers and their advisers manage losses, help you extract the full benefit the law allows.
What unites them is discipline before the deadline. The set-off itself is mechanical once your figures are correctly classified, but the value is only locked in if you file on time and report each loss in the right schedule. Spend the effort on clean classification and a punctual return, and the rules work entirely in your favour.
File on time, every loss year
The single rule that matters most: file by the Section 139(1) due date, or you forfeit the right to carry forward all losses except house property. One late day can cost you years of carry-forward.
Keep three trading ledgers
Separate F and O, intraday, and delivery capital gains into three distinct silos. Lumping them together misstates both your set-off this year and your carry-forward flexibility, and it is wrong on the return.
Harvest gains against old losses
If you have carried-forward capital losses about to expire, consider realising matching gains before they lapse. A loss unused after eight years is written off completely, so time your gains to absorb it.
Mind the long-term lock
A long-term capital loss can only meet a long-term gain. If you are sitting on a long-term loss, avoid wasting the year with only short-term gains it cannot touch, and plan to book a long-term gain.
Check your regime for property
House property loss set-off against other heads is only available in the old regime, capped at ₹2 lakh. If you have a large housing loan loss, factor this into your regime choice each year.
Report losses in the right schedule
Losses must appear in the correct ITR schedule, such as Schedule CFL, to be recognised. A genuine loss omitted from the schedule is treated as never claimed, so check your form carefully.
Loss Set-Off Rules at a Glance
This table gathers the rules you will reach for most. If you remember only two things, let them be that long-term losses are locked to long-term gains, and that filing on time is what preserves every carry-forward except house property.
| Question | Answer |
|---|---|
| What is set off first? | Intra-head, within the same head |
| Can losses reduce salary? | Only house property loss, old regime, ₹2L cap |
| Long-term capital loss sets off against | Long-term capital gains only |
| Short-term capital loss sets off against | Both short and long-term gains |
| F and O loss carries forward | 8 years, versus business income |
| Intraday loss carries forward | 4 years, versus speculative profit |
| Capital and business loss carry | 8 assessment years |
| To carry forward you must | File the ITR by the due date |
| House property loss exception | Carries forward even if filed late |
Loss Set-Off and Carry Forward Calculator: Frequently Asked Questions
What is set-off of losses?
Set-off is the adjustment of a loss against income in the same financial year to reduce your taxable income. It happens in two stages. Intra-head set-off adjusts a loss against income under the same head, such as one business loss against another business profit.
Inter-head set-off then adjusts any remaining loss against income under a different head, subject to strict restrictions. Whatever loss is still left after both stages is not lost immediately; it is carried forward to future years. Set-off, done correctly, can legitimately reduce your tax bill by a substantial amount, which is exactly why the order and the restrictions matter so much in practice.
What is the difference between intra-head and inter-head set-off?
Intra-head set-off adjusts a loss against income within the same head of income. For example, a loss from one house property is set against rental income from another, or a short-term capital loss on one share against a short-term gain on another.
Inter-head set-off is the next stage, where a loss remaining after intra-head adjustment is set against income under a different head altogether, such as a business loss against interest income. Intra-head is almost always allowed, but inter-head carries heavy restrictions: capital losses and speculative losses cannot cross heads at all, and business losses cannot touch salary.
Can I set off a capital loss against my salary?
No. Capital losses, whether short-term or long-term, cannot be set off against salary income under any circumstances. They can only be set off against capital gains.
A short-term capital loss can meet both short-term and long-term capital gains, while a long-term capital loss can meet only long-term gains. If you have no capital gains this year to absorb the loss, the whole capital loss carries forward for up to eight assessment years to be used against future capital gains. Salary income is heavily protected in the set-off rules, and only a house property loss, in the old regime and capped at ₹2 lakh, can reduce it.
Why can a long-term capital loss only offset a long-term gain?
Under Section 74, a long-term capital loss can only be set off against a long-term capital gain, never a short-term one. The reason is that short-term and long-term gains are taxed at different rates, and allowing a long-term loss to wipe out a higher-taxed short-term gain would let taxpayers shift losses to where they save the most tax, which the law deliberately prevents.
A short-term capital loss is treated more generously because it is the higher-taxed category, so it is allowed to offset both short-term and long-term gains. This asymmetry is one of the most commonly misunderstood rules, and the calculator enforces it precisely.
How is an F and O loss treated for set-off?
Futures and options trading is classified as a non-speculative business under the Income Tax Act, so an F&O loss is a business loss, not a capital loss. This means it can be set off against income under any head except salary in the same year, so it can absorb interest income, rental income, capital gains and other business profit.
Any unabsorbed F&O loss carries forward for eight assessment years, but in future years it can only be set off against business income, not against other heads. To carry it forward, you must file ITR-3 by the due date. Treating F&O as anything other than a business loss is a common and costly error, and it is exactly the kind of misclassification the calculator prevents by keeping F&O in its own business box.
How is an intraday trading loss different?
Intraday equity trading, where you buy and sell the same stock on the same day without taking delivery, is a speculative business under Section 43(5). A speculative loss is walled off in its own silo: it can only be set off against speculative profit, never against F&O business income, capital gains, salary or any other head.
Any unabsorbed speculative loss carries forward for only four assessment years, not the eight years that business and capital losses get, and it can only meet future speculative profit. This is why you must keep your intraday trades separate from your F&O and delivery trades; merging them misstates both your current set-off and your carry-forward.
How long can I carry forward each type of loss?
Most losses carry forward for eight assessment years: short-term and long-term capital losses, non-speculative business losses including F&O, and house property losses all get eight years. The main exception is speculative loss from intraday trading, which carries forward for only four assessment years.
Losses from the business of owning and maintaining race horses also carry for four years. The clock starts from the assessment year following the year in which the loss was incurred, which is why the calculator shows you the exact assessment year each carried-forward loss will expire in, so you can plan to use it before it lapses. Once the carry-forward period expires, any unused loss is written off permanently and cannot be set off in later years, so it is worth planning to absorb old losses before they lapse.
Do I have to file on time to carry forward losses?
Yes, and this is the most important practical rule. To carry forward almost every type of loss, you must file your income tax return on or before the due date specified under Section 139(1).
If you file even one day late, you permanently lose the right to carry forward those losses, however genuine they are. The single exception is a house property loss, which can be carried forward even if you file a belated return. This is why filing on time in a loss year is critical: a missed deadline does not just attract a late fee, it can destroy years of valuable carry-forward that could have saved substantial tax in the future.
How does the tax regime affect house property loss?
The tax regime makes a large difference for house property losses. Under the old regime, a house property loss can be set off against income from any other head, including salary, but only up to ₹2 lakh in a year.
Under the new regime, this inter-head set-off is not permitted at all: a house property loss can only be set off against income from another house property you own, and if you have just one property in loss, that loss cannot reduce any other income this year. In both regimes, any unabsorbed house property loss carries forward for eight years against future house property income. The calculator switches this rule automatically with the regime toggle.
Can a business loss be set off against salary?
No. A business or professional loss, whether speculative or non-speculative, can never be set off against salary income. This is an express restriction in Section 71 designed to stop salaried taxpayers from creating artificial business losses to shelter their pay from tax.
A non-speculative business loss, such as an F&O loss, can be set off against every other head, interest, rent, capital gains and other business income, just not salary. A speculative loss from intraday trading is even more restricted, meeting only speculative gains and nothing else, and it lasts only four years rather than eight. So if you are salaried and run a side business at a loss, that loss will reduce your other non-salary income but leave your salary fully taxable.
What happens to losses I cannot set off this year?
Any loss that cannot be set off in the current year, either because there is no matching income or because the restrictions prevent it, is carried forward to future years. Each carried-forward loss goes into its own silo and can only be set off against a specific kind of future income: a long-term capital loss against future long-term gains, an F&O loss against future business income, a speculative loss against future speculative profit, and so on.
The loss waits there for its carry-forward period, eight years for most, four for speculative, and is set off automatically as matching income arises. If no matching income appears before the period expires, the loss is written off.
Can I set off losses against lottery or gambling winnings?
No. The law expressly forbids setting off any loss against income from winnings from lotteries, crossword puzzles, card games, horse races, and any other form of gambling or betting. These winnings are taxed at a flat rate with no deductions and no set-off allowed, so even a genuine business loss or capital loss cannot reduce them.
This is a deliberate anti-avoidance measure. So if you win a lottery, the entire winning is taxed regardless of any losses you may have elsewhere, and those losses must instead be set off against other eligible income or carried forward. The calculator does not treat any income as absorbing losses if it falls in this protected category.
In what order are capital losses set off?
The calculator applies the order that minimises your tax. First, a short-term capital loss is set off against short-term capital gains, which are taxed at a higher rate, to save the most tax. Any remaining short-term loss is then set against long-term capital gains.
A long-term capital loss is set only against long-term gains. The Act does not rigidly prescribe the order between using a short-term loss on short versus long gains, but setting it against the higher-taxed short-term gain first is the standard tax-efficient approach and the one the tool follows. This ordering ensures your losses shelter the income that would otherwise be taxed most heavily, squeezing the maximum lawful benefit out of every rupee of loss you have realised.
Does the new Income-tax Act 2025 change these rules?
The core mechanics survive almost untouched. Intra-head first, then inter-head, house property capped at ₹2 lakh against other heads in the old regime, business losses carried for eight years, speculative for four, all continue under the new Income-tax Act, 2025.
The main changes are in vocabulary, with tax year replacing assessment year and previous year, and a transition clause fixing how pre-April-2026 losses carry over. The requirement to file by the due date to preserve carry-forward becomes, if anything, stricter to track. For a taxpayer, the practical rules for the current year remain as the calculator applies them, so you can rely on the head-by-head treatment shown here. If the transition rules for your specific pre-2026 carried-forward losses are complex, a chartered accountant can confirm exactly how they migrate into the new framework.
Can carried-forward losses reduce my basic exemption limit?
No. Carried-forward losses, particularly capital losses under Section 74, cannot be used to reduce your total income below the basic exemption limit in a way that creates a refund of tax you never paid.
They are set off against specific eligible income as it arises, reducing the tax on that income, but they do not manufacture a benefit against the exemption threshold itself. The purpose of carry-forward is to let you smooth genuine gains and losses across years, not to erase your basic tax-free allowance. So a large carried-forward capital loss simply waits to offset future capital gains, and its benefit is realised only when such gains actually occur. This is also why tax-loss harvesting works: by deliberately booking gains in a year when you hold an expiring loss, you convert a loss that would otherwise lapse into a real reduction of tax on those gains.
Does this calculator compute my final tax?
No, it computes your taxable income after applying the set-off rules and shows what carries forward, but it does not calculate your final tax liability, which depends on your slabs, rebates, surcharge and cess. Think of this tool as the crucial middle step: it takes your raw head-wise gains and losses and produces the correctly adjusted taxable income figure, enforcing every silo rule along the way.
You then take that taxable income to a tax calculator to work out the actual tax due. Using our income tax calculator alongside this one gives you the full picture, from raw losses through correct set-off to your final bill under either regime. The two tools are designed to hand off to each other: this one produces the adjusted taxable income, and the tax calculator turns that into rupees of tax, so you never have to apply the set-off rules by hand in the middle of a tax computation.
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Disclaimer and Editorial Transparency
This loss set-off and carry forward calculator is an educational tool, not tax advice, and not a substitute for filing your income tax return or consulting a qualified professional.
It applies the set-off and carry-forward rules of Sections 70 to 74 of the Income Tax Act as they stand for FY 2026-27, including the intra-head and inter-head order, the capital loss silos under Section 74, the treatment of F&O as non-speculative business and intraday as speculative, and the house property inter-head cap that varies by regime. Your actual assessment is determined by the Income Tax Department from the figures in your return, and complex situations may involve rules this tool does not model.
The tool assumes each figure you enter is the correctly classified, intra-head-netted amount for that head, and it does not verify the classification of your income or the eligibility of any particular transaction. The carry-forward of every loss except house property depends on filing your return by the due date under Section 139(1), which is your responsibility. Always verify the current provisions on the Income Tax Department portal, and the governing sections are published by the Income Tax Department in the Act. For a return involving multiple heads, business income or significant carried-forward losses, consult a chartered accountant. CalcWise.Finance provides tools for informational purposes only and does not file returns or sell financial products.