Section 108 Income Tax Act 2025: How Are Losses Set Off Under the Same Head?

Section 108 explains when a loss from one source of income can be adjusted against income from another source under the same head in the same tax year. Special rules govern short-term and long-term capital losses.

Current law: Section 108 forms part of Chapter VII of the Income-tax Act, 2025, effective from 1 April 2026. It broadly replaces Section 70 of the Income-tax Act, 1961. The discussion below is based on the enacted text, including the published Finance Act, 2026 consolidation.

What is intra-head set-off of losses?

Intra-head set-off means adjusting a loss from one source against positive income from another source classified under the same head of income. For example, subject to applicable restrictions, a loss from one business may be adjusted against profit from another business during the same tax year. This differs from inter-head set-off, which concerns losses and income under different heads and is governed by Section 109.

Section 108: statutory rules explained

Section 108(1): losses other than capital gains

Unless another provision of the Act states otherwise, where the computation from a source under a head of income other than Capital gains produces a loss for a tax year, the assessee may set off that loss against income from another source under the same head for that tax year. The rule does not override specific restrictions elsewhere in the Act.

Section 108(2)(a): short-term capital loss

Where computation under Sections 72 to 90 results in a loss in respect of a short-term capital asset, that loss may be adjusted against income from another capital asset in the same tax year. Accordingly, a short-term capital loss may be set off against either short-term or long-term capital gains, subject to applicable provisions.

Section 108(2)(b): long-term capital loss

A loss in respect of a long-term capital asset may be adjusted only against income from another long-term capital asset for that tax year. It cannot be set off against short-term capital gains.

Essential distinction: Short-term capital loss can generally be set off against short-term or long-term capital gains; long-term capital loss can be set off only against long-term capital gains.

Relevant statutory concepts

Tax year: The period used under the Income-tax Act, 2025 to compute income and determine liability, generally a financial year beginning on 1 April.
Assessee: A person liable to pay tax or another sum under the Act, including persons covered by the extended definition in Section 2.
Source of income: A distinct activity, property or investment producing income or loss within a particular head; its classification depends on the facts and applicable provisions.
Short-term capital asset and long-term capital asset: Capital assets classified by the applicable holding-period rules and other definitions in the Act. The applicable period varies with the asset and statutory conditions.
Set-off: Adjustment of an eligible loss against eligible positive income to arrive at the amount chargeable under the applicable computation provisions.

Practical illustrations

Example 1: two ordinary businesses

Business A earns Rs. 8,00,000 while Business B incurs a loss of Rs. 3,00,000 in the same tax year. If both are eligible for intra-head adjustment and no specific restriction applies, the net business income is Rs. 5,00,000.

Example 2: short-term capital loss

An assessee has a short-term capital loss of Rs. 1,20,000 and long-term capital gains of Rs. 2,00,000. Subject to applicable restrictions, the short-term loss may be adjusted against the long-term gain, leaving Rs. 80,000 of gains.

Example 3: long-term loss and short-term gain

An assessee has a long-term capital loss of Rs. 1,50,000 and short-term capital gains of Rs. 2,00,000. Section 108 does not permit the long-term loss to be adjusted against those short-term gains. Carry-forward eligibility must be considered separately under Section 111.

Limitations and compliance points

  • The general permission under Section 108(1) is expressly subject to other provisions of the Act. Special-category losses may be subject to separate rules.
  • Capital losses cannot be treated as ordinary business or other-source losses merely to obtain a set-off.
  • Intra-head set-off is for the same tax year; carry-forward of unabsorbed losses is governed by separate provisions and conditions.
  • Keep computation statements, transaction records, books, contract notes and supporting evidence to substantiate the nature and amount of losses.
  • Exempt income and losses attributable to exempt activities require separate scrutiny; no automatic set-off should be assumed.

Section 109 governs set-off between different heads of income. Sections 110 and 111 address carry-forward of house-property and capital losses, respectively. Sections 72 to 90 contain relevant capital-gains computation rules. Section 108 broadly corresponds to Section 70 of the Income-tax Act, 1961, but the 2025 Act's wording and cross-references should be used for tax years governed by the new Act.

Frequently asked questions

Can a loss from one business be adjusted against profit from another?

Generally yes, if both fall under the same head and no specific statutory restriction prevents the set-off.

Can a short-term capital loss be set off against long-term capital gains?

Yes, Section 108(2)(a) permits this, subject to the other applicable provisions of the Act.

Can a long-term capital loss be set off against short-term capital gains?

No. Under Section 108(2)(b), a long-term capital loss can be adjusted only against long-term capital gains.

Does Section 108 allow losses to be carried forward?

No. It addresses set-off within the same tax year. Carry-forward rules are dealt with separately, including Section 111 for capital losses.

Official reference

Read the Income Tax Department's Income-tax Act, 2025 resources, including the updated Act text, to verify the applicable provision and amendments.

Last reviewed: 10 November 2026. This article is general legal information; application depends on the facts and the statutory exceptions.