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Section 113 Income Tax Act 2025: Can Speculation Loss Be Set Off and Carried Forward?

Section 113 restricts adjustment of speculation-business losses to profits from speculation businesses and permits eligible unabsorbed losses to be carried forward for up to four succeeding tax years. It also sets out special rules for certain companies trading in shares.

Applicable law: Income-tax Act, 2025, effective from 1 April 2026. This guide discusses Section 113, corresponding broadly to Section 73 of the Income-tax Act, 1961. Verify the applicable law for the relevant tax year.

What is the rule for speculation losses under Section 113?

A loss from a speculation business cannot be adjusted against ordinary business income, salary, house-property income, capital gains or income from other sources. Under Section 113(1), it may be set off only against profits and gains of another speculation business. Unabsorbed eligible loss may be carried forward under Section 113(2), subject to the four-tax-year limit in Section 113(3).

Section 113 explained, subsection by subsection

Section 113(1): Set-off restriction

Loss computed in respect of a speculation business carried on by the assessee is eligible for set-off only against profits and gains of another speculation business.

Section 113(2): Carry forward of unabsorbed loss

Where the speculation loss cannot be wholly adjusted in the relevant tax year, the unadjusted amount may be carried forward to the following tax year. It may then be adjusted against profits of any speculation business carried on by the same assessee in that year. Any further balance may continue to be carried forward, subject to the statutory time limit.

Section 113(3): Four-year limit

The loss cannot be carried forward for more than four tax years immediately succeeding the tax year in which it was first computed. The four-year period is not renewed when part of the loss is adjusted in a later year.

Section 113(4): Priority over specified allowances

Where an allowance, or part of an allowance, relating to the speculation business under Section 33(11) or Section 45(7) is also carried forward, effect must first be given to Section 113. The interaction with the relevant allowance provisions should be checked in computing taxable profits.

Section 113(5): Deemed speculation business for companies dealing in shares

If part of a company's business consists of purchasing and selling shares of other companies, that part is deemed to be speculation business for this section, subject to the exceptions in subsection (6). This statutory deeming rule can apply independently of whether particular trades would otherwise be treated as speculative transactions.

Section 113(6): Exceptions to the company share-trading deeming rule

Subsection (5) does not apply to a company where either of the following is satisfied:

  • Its gross total income consists mainly of income chargeable under the heads Income from house property, Capital gains or Income from other sources; or
  • Its principal business is trading in shares, banking, or granting loans and advances.

These exceptions concern the deeming provision in subsection (5); they do not generally exempt actual speculation-business losses from subsections (1) to (4).

Relevant statutory definitions and concepts

Speculation business: A business consisting of speculative transactions, considered with the applicable definition of a speculative transaction under the Act. Certain eligible exchange-traded derivatives and other specified transactions may be excluded from that definition if statutory conditions are met.
Set-off: Adjustment of an eligible loss against income or profits in accordance with the restrictions prescribed by law.
Carry forward: Transfer of an eligible unabsorbed loss to subsequent tax years for permitted future adjustment, subject to the time limit and return-filing requirements.
Tax year: The tax-year concept under the Income-tax Act, 2025, which generally refers to the twelve-month period commencing on 1 April, subject to applicable statutory provisions.
Important distinction: A transaction involving shares or derivatives is not automatically a speculation transaction. Its classification depends on the statutory definition, exclusions, the nature of the business and, for companies, the deeming rule and exceptions in Section 113(5) and (6).

Practical examples of speculation-loss adjustment

Example 1: No adjustment against normal business profit

An assessee incurs a speculation-business loss of Rs. 3,00,000 and earns Rs. 5,00,000 from a non-speculation business in the same tax year. The speculation loss cannot be set off against that ordinary business profit under Section 113(1). Subject to eligibility, it may be carried forward for adjustment against future speculation-business profits.

Example 2: Partial set-off in the following year

A qualifying speculation loss of Rs. 4,00,000 is carried forward. In the next tax year the assessee earns Rs. 1,50,000 in speculation-business profit. Up to Rs. 1,50,000 may be adjusted, leaving Rs. 2,50,000 available for further eligible adjustment within the original four-year period.

Example 3: Company trading in shares

A company buying and selling shares of other companies must assess whether Section 113(5) deems that activity a speculation business. If its principal business is trading in shares, the exception under Section 113(6)(b) may apply. The company's actual activities and income composition remain important.

How does Section 113 differ from Section 112?

Section 112 generally addresses non-speculation business losses and provides an eight-year carry-forward period. Section 113 specifically addresses speculation-business losses, restricts their set-off to speculation-business profits and provides a four-year carry-forward period.

Transition from the Income-tax Act, 1961

Section 113 broadly corresponds to Section 73 of the Income-tax Act, 1961. For losses originating before 1 April 2026, the repeal and saving provisions of Section 536 of the 2025 Act must be considered. The transition does not create a fresh four-year carry-forward period for older losses or revive an otherwise ineligible loss.

Frequently asked questions

Can speculation loss be set off against normal business income?

No. Section 113(1) permits set-off only against profits and gains of another speculation business.

For how many years can speculation loss be carried forward?

For a maximum of four tax years immediately following the tax year in which the loss was first computed.

Does every share-trading loss of a company count as speculation loss?

No. Section 113(5) contains a deeming rule, but Section 113(6) provides exceptions based on the company's income composition or principal business.

Is timely filing of a loss return important?

Yes. Eligibility to carry forward losses also depends on the applicable return-filing and loss-determination provisions. The requirements for the relevant tax year should be checked.

Official statutory references

For the enacted text and subsequent amendments, consult the Income-tax Act, 2025 as amended and the Income Tax Department guidance on set-off and carry-forward of losses.

Updated: 10 November 2026. General legal information; individual facts and applicable filing provisions may affect the outcome.