Section 109 — Inter-Head Set-off | ITA 2025

Section 109 — INTER-HEAD SET-OFF (1961 s. 71 SUCCESSOR)

Section 109 is the substantive equivalent of 1961 s. 71. Inter-head set-off: losses computed under any head (other than CG) may be set off against income of any other head, including CG, subject to: (a) Speculation / specified-business loss — NOT inter-head adjustable (only ss. 113 / 114); (b) HP loss — capped at ₹ 2 lakh per FY against any-head; (c) PGBP loss — NOT against Salaries head (FA 2017 onwards 1961 s. 71(2A) → s. 109(2A) successor); (d) CG loss — NOT inter-head set off (only intra-head, per s. 108).

Statutory text — Income-tax Act, 2025

Marginal note — Set off of losses under any other head of income

(1) Subject to the provisions of this Chapter, for any tax year, if income com- puted under any head of income (other than “Capital gains”) is a loss, such loss shall be set off against income of the assessee under any other head, including “Capital gains”, if any, assessable for that tax year, subject to the following conditions:—

(a) loss under the head “Profits and gains of business or profession” shall not be set off against income assessable under the head “Salaries”; and

(b) loss under the head “Income from house property” shall be set off to the extent of ` 200000 against income under any other head.

(2) For any tax year, the loss under the head “Capital gains” shall not be set off against income under any other head.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 109	INCOME-TAX ACT, 1961 — s. 71
Inter-head set-off general rule	1961 s. 71(1)
HP-loss cap ₹ 2 lakh	1961 s. 71(3A) (FA 2017)
PGBP-loss NOT against Salaries	1961 s. 71(2A) (FA 2017)
CG-loss intra-head only	1961 s. 71(3)

INTER-HEAD SET-OFF MATRIX (POST FA 2017)

FROM \ AGAINST: PGBP-loss: → HP / OS / CG (not Salaries); HP-loss: → PGBP / OS / CG / Salaries (capped at ₹ 2 lakh, balance carried forward); OS-loss: → PGBP / HP / CG (not Salaries — no salary against speculative-OS losses); STCG-loss: → No inter-head — only intra-head u/s 108; LTCG-loss: → No inter-head, no STCG — only LTCG u/s 108. Salaries-loss: not possible (no negative salary).

THE ₹ 2 LAKH HP-LOSS CAP

FA 2017 introduced cap on HP-loss inter-head set-off (1961 s. 71(3A) → s. 109 successor): MAX ₹ 2 lakh per FY against any other head. Excess HP-loss carried forward u/s 110 for 8 tax years against ONLY HP-income (not against any other head). This dramatically reduced the tax-shield from leveraged-property investments — high-EMI / low-rent / let-out properties no longer offer unlimited inter-head loss-relief.

PLANNING NOTES

(i) For salaried HNI clients with let-out property at loss, model the ₹ 2 lakh cap — beyond this, no current-year tax-shield from interest. (ii) For business owners, evaluate whether to claim PGBP-loss against Salaries (NOT permitted) or against OS / HP / CG (permitted). (iii) For F&O / derivative trading losses (treated as PGBP-non-speculative), inter-head set-off available except against Salaries. (iv) For CG-losses, document carry-forward strictly — inter-head set-off entirely barred.

CROSS-REFERENCES

Section 108 — Intra-head set-off (operates first).
Sections 110-114 — Carry-forward provisions.
Section 263 — Return of income (timely-filing requirement for carry-forward).

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