Section 111 is the substantive equivalent of 1961 s. 74 . Where CG-loss cannot be wholly set off intra-head u/s 108, the unallowed balance is carried forward up to EIGHT subsequent tax years. Set-off rules in carry-forward years preserve…
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ITA 2025 · Section 111
Section 111 — CARRY FORWARD OF CAPITAL GAINS LOSS (1961 s. 74 SUCCESSOR)
Section 111 is the substantive equivalent of 1961 s. 74. Where CG-loss cannot be wholly set off intra-head u/s 108, the unallowed balance is carried forward up to EIGHT subsequent tax years. Set-off rules in carry-forward years preserve character: (a) STCL → set off against STCG OR LTCG; (b) LTCL → set off ONLY against LTCG (no STCG offset). Timely-filing of return per s. 263 is mandatory for carry-forward.
CG-LOSS RECOVERY HIERARCHY
Year-of-incurrence: (i) STCL — first set off intra-head against STCG (preferred — saves higher STCG rate); residual STCL → LTCG (saves lower LTCG rate). Carried forward as STCL-character. (ii) LTCL — set off ONLY against LTCG; never against STCG. Carried forward as LTCL-character. Carry-forward years (8 max): same character preservation. Year-9: unused = lost forever. VDA (crypto) losses — VDA-loss may set off ONLY against VDA-gain (s. 194 / 187(1A) successor); separate compartment.
CASE LAW
ITAT (various) — STCL with character (e.g., from STT-paid equity) preserves character on carry-forward. CIT v. Banque Indosuez (Mum HC) — CG-loss-carry-forward survives merger / amalgamation under s. 117 conditions. PCIT v. T.M. Krishnaswamy (Mad HC) — even where intra-head set-off was theoretically available but not claimed, carry-forward not denied if timely-filed.
PLANNING NOTES
(i) Document STCL vs. LTCL classification carefully — character preservation is critical for carry-forward utilisation. (ii) For HNI portfolios, year-end harvest-loss strategy: realise STCL/LTCL to offset CG-tax, but mind 30-day re-purchase rules in some jurisdictions. (iii) For VDA / crypto, separate compartment — losses CANNOT offset other-asset CG. (iv) On amalgamation / demerger of an assessee, CG-loss-carry-forward eligibility per s. 117 conditions (closely-held company test).
CROSS-REFERENCES