Section 113 — Speculation Business Loss | ITA 2025

Section 113 — SPECULATION BUSINESS LOSS (1961 s. 73 SUCCESSOR)

Section 113 is the substantive equivalent of 1961 s. 73. Speculation-business loss has a SEPARATE COMPARTMENT in tax computation: Sub-section (1) — Speculation-loss may be set off ONLY against another speculation-business profit (no other PGBP, no inter-head). Sub-section (2) — Carry-forward up to FOUR tax years (much shorter than s. 112 PGBP general 8 years). Definition of 'speculation business' per s. 26(1)(d)/Explanation (1961 s. 43(5)): commodity / share trading without delivery — derivatives are CARVED OUT (post-FA 2005).

Statutory text — Income-tax Act, 2025

Marginal note — Set off and carry forward of loss in case of speculation business

(1) 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 spec- ulation business.

(2) Where for any tax year, loss computed in respect of a speculation business cannot be wholly set off under sub-section (1), so much of the loss not so set off or the whole loss, as the case may be, shall be carried forward to the following tax year and—

(i) be set off against the profits and gains, if any, of any speculation business carried on by him for such tax year; and

(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following tax year and so on.

(3) 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.

(4) Where any allowance of part thereof under section 33(11) or 45(7) related to the speculation business is to be carried forward, effect shall first be given to the provision of this section.

(5) In this section, where any part of the business of the assessee (being a compa- ny) consists of purchase and sale of shares of other companies, then the assessee shall be deemed to be carrying on a speculation business, to the extent to which its business consists of purchase and sale of such shares.

(6) The provisions of sub-section (5) shall not apply to an assessee, being a company, if—

(a) its gross total income consists mainly of income which is chargeable under the heads “Income from house property”, “Capital gains” or “Income from other sources”; or

(b) its principal business is of trading in shares or banking or the granting of loans and advances.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 113	INCOME-TAX ACT, 1961 — s. 73
s. 113(1) — Speculation-loss set off only against speculation-profit	1961 s. 73(1)
s. 113(2) — 4-year carry-forward (NOT 8)	1961 s. 73(4)
Definition: speculation = no-delivery commodity/share trading	1961 s. 43(5) read with Expl.
Derivative trading (F&O on recognised SE) NOT speculation post FA 2005	1961 s. 43(5)(d) — same

KEY DEFINITIONAL DISTINCTIONS

Speculation-business INCLUDES: cash-settled commodity trading; share trading without delivery (intraday); some forex transactions outside RBI-recognised channels. Speculation-business EXCLUDES (post FA 2005): derivative trading on recognised stock exchange (BSE / NSE) — F&O trades, options-writing, etc. (s. 43(5)(d) carve-out → s. 26(1)(d) Explanation successor); commodity-derivative trading on recognised commodity exchange (FA 2013); hedging-transactions ancillary to genuine business.

DEEMING PROVISION (Sub-section 4 onwards / Explanation)

1961 Explanation to s. 73 (now s. 113): companies (other than investment-companies) — share-trading by such companies is DEEMED speculation-business unless principal-business is granting loans / banking / share-trading-only. This deeming provision was designed to deter tax-arbitrage where share-trading-loss in non-FI companies offset other PGBP profits.

PLANNING NOTES

(i) For F&O traders, classify income/loss as PGBP non-speculative — book audit u/s 63 if turnover exceeds threshold. (ii) For pure intraday traders, speculation-classification triggers s. 113 — losses isolated; 4-year carry-forward only. (iii) Maintain separate ledgers for speculative vs. non-speculative businesses. (iv) Companies with share-trading activity must verify Explanation-applicability — investment-vs-trading classification critical. (v) Speculation-loss-carry-forward (max 4 years) cannot offset against ordinary PGBP — track separately in ITR Schedule CFL.

CROSS-REFERENCES

Section 26(1)(d) Explanation — Speculation-business definition.
Section 112 — Non-speculative PGBP carry-forward (8 years).
Section 114 — Specified-business loss.
Section 263 — Return-filing for carry-forward.

← All sections (537)Act 2025 hub