Section 114 — Specified Business Loss | ITA 2025

Section 114 — SPECIFIED BUSINESS LOSS (1961 s. 73A SUCCESSOR)

Section 114 is the substantive equivalent of 1961 s. 73A. 'Specified business' (cross-referenced to s. 46) covers infrastructure / cold-chain / pipeline / hospital / hotel / fertiliser / sugar / housing-project businesses eligible for s. 35AD-equivalent 100% capital-expenditure deduction. Sub-section (1): loss from specified-business set off ONLY against profits of another specified-business — separate compartment from regular PGBP. Sub-section (2): carry-forward INDEFINITE — no time-limit (unique among loss-carry-forward provisions). Closes Chapter VII (Set-off & Carry Forward).

Statutory text — Income-tax Act, 2025

Marginal note — Set off and carry forward of losses computed in respect of specified business

(1) Any loss, computed in respect of a specified business, referred to in section 46, shall be set off only against profits and gains of another specified business.

(2) Where for any tax year, loss computed in respect of a specified 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 specified 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.

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 — s. 114	INCOME-TAX ACT, 1961 — s. 73A
s. 114(1) — Specified-business-loss only against specified-business profit	1961 s. 73A(1)
s. 114(2) — INDEFINITE carry-forward	1961 s. 73A(2) — same (no 8-year limit)
'Specified business' per s. 46	1961 s. 35AD — same

RATIONALE OF UNIQUE TREATMENT

Specified businesses (s. 46) attract 100% capital-expenditure deduction in year of commencement — this typically generates LARGE LOSSES in early years that cannot reasonably be absorbed within 8 years. The INDEFINITE carry-forward recognises this asymmetry: high upfront capex offset against future operating profits as project matures. But the COMPARTMENTALISATION (only against specified-business profit) prevents abuse — loss cannot leak into general PGBP.

ELIGIBLE 'SPECIFIED BUSINESS' (s. 46 cross-ref)

Includes: cold-chain facility; warehousing for agricultural produce / sugar; cross-country natural-gas / crude-oil / petroleum pipeline; hotel ≥ 2-star + hospital ≥ 100 beds in specified areas; affordable housing project; fertiliser-production; bee-keeping; specified-honey-production; semi-conductor wafer-fabrication; etc. FA 2016 sunset: closed window for new specified-business commencement post-1-Apr-2020 for some categories — verify s. 46 list applicability for current year.

PLANNING NOTES

(i) For infrastructure / hotel / hospital developers eligible u/s 46, model the s. 114 LOSS-CARRY-FORWARD as long-term tax-shield. (ii) Maintain segregation: specified-business books separate from any other business — facilitates s. 114 isolation. (iii) Indefinite carry-forward is a major value driver in PE-backed infrastructure investments — model in DCF / NPV of project. (iv) On amalgamation / demerger involving specified-business entities, s. 117 conditions apply — beneficial ownership continuity test.

CROSS-REFERENCES

Section 46 — Specified-business definition + 100% deduction.
Section 117 — Beneficial-ownership continuity for carry-forward.
Section 263 — Return-filing for carry-forward.
Section 112 — General PGBP-loss (different time limit).

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