Section 115 Income Tax Act 2025: Can Race Horse Losses Be Carried Forward?

Section 115 of the Income-tax Act, 2025 explains when losses from owning and maintaining race horses can be set off and carried forward, the meaning of stake money and the four-tax-year limit.

Updated: 10 November 2026 | Statutory provision: Section 115, Chapter VII

Quick answer: A qualifying race horse loss may be adjusted only against income from owning and maintaining race horses. Any eligible balance may be carried forward for up to four tax years immediately succeeding the tax year in which the loss was first computed, subject to the statutory conditions.
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What does Section 115 of the Income-tax Act, 2025 provide?

The provision creates a ring-fenced treatment for losses arising from the specified activity of owning and maintaining race horses. Such losses cannot be set off against salary, house property income, capital gains, ordinary business income or unrelated income from other sources. The permitted set-off is against income from the specified race horse activity.

Section 115 explained subsection by subsection

Section 115(1): Restriction on set-off

A loss incurred in the specified activity during a tax year can be set off only against income from that specified activity. The rule prevents the use of these losses to reduce tax on unrelated sources of income.

Section 115(2): Carry-forward of unabsorbed loss

Where the loss cannot be fully absorbed in the tax year, the unabsorbed amount may be carried forward to the following tax year. It may then be set off against income, if any, from the specified activity carried on by the assessee in that subsequent tax year. Any remaining eligible loss may continue to be carried forward within the prescribed period.

Section 115(3): Four-tax-year limit

The carry-forward period cannot exceed four tax years immediately succeeding the tax year for which the loss was first computed. The period is measured from the original loss year, not restarted whenever a balance is carried forward.

Section 115(4): Definitions

The section supplies specific meanings for horse race, stake money, qualifying loss, race horses and specified activity. These definitions control whether the special set-off and carry-forward rule applies.

Relevant statutory definitions under Section 115(4)

Horse race - clause (a): A horse race on which wagering or betting may lawfully be made.
Income by way of stake money - clause (b): The gross prize money received by the owner of a race horse or race horses because the horse or horses secure a winning position in a horse race.
Loss incurred in specified activity - clause (c): The shortfall where stake money, if any, is less than non-capital expenditure incurred wholly and exclusively for maintaining race horses.
Race horses - clause (d): Horses owned and maintained by the assessee for running in horse races.
Specified activity - clause (e): Owning and maintaining race horses.
Important distinction: This section addresses the statutorily defined activity of owning and maintaining race horses. It does not establish a general deduction or loss carry-forward rule for betting or gambling losses.

Practical example: How does the four-year carry-forward work?

Assume an owner receives Rs. 3,00,000 in stake money during tax year 2026-27 and incurs Rs. 8,00,000 in qualifying non-capital expenditure wholly and exclusively for maintaining race horses. The resulting specified-activity loss is Rs. 5,00,000.

If no other eligible income from the specified activity is available for set-off in 2026-27, the Rs. 5,00,000 may be carried forward, subject to applicable return-filing and other statutory requirements. It can potentially be set off against qualifying income arising in tax years 2027-28 through 2030-31, but not beyond that four-year period.

Illustration: If qualifying income of Rs. 2,00,000 arises in 2027-28, the available carried-forward loss may reduce it to nil and the remaining Rs. 3,00,000 may be carried forward, subject to eligibility and the original time limit.

Corresponding provision under the Income-tax Act, 1961

Section 115 of the Income-tax Act, 2025 broadly corresponds to Section 74A of the Income-tax Act, 1961 in relation to losses from owning and maintaining race horses. The four-year carry-forward restriction is retained. For losses originating before 1 April 2026, transitional provisions under Section 536 of the 2025 Act should also be examined; the new law does not automatically restart an expired or running carry-forward period.

Frequently asked questions

Can a race horse loss be adjusted against salary income?

No. Section 115(1) permits set-off only against income from the specified activity.

How many years can a race horse loss be carried forward?

Up to four tax years immediately following the tax year in which the loss was first computed.

Does Section 115 apply to all horse-related expenditure?

No. The definition of qualifying loss refers to non-capital expenditure incurred wholly and exclusively for maintaining race horses, measured against income by way of stake money.

Is prize money called stake money under this provision?

Yes, where it meets the definition in Section 115(4)(b), which concerns gross prize money received by the owner because a race horse achieves a winning position.

Does the four-year period restart when a loss is partly set off?

No. The original loss year determines the final eligible carry-forward year.

Can losses from before April 2026 continue under the new Act?

Potentially yes, if they were validly eligible under the former law and satisfy the transitional provisions. The original nature and remaining carry-forward period of the loss must be considered.

Official law and further reading

Official Section 115 textIncome-tax Act, 2025Income Tax Department FAQs

For application to a particular return, verify the operative statutory text, transitional rules and procedural requirements for claiming and carrying forward losses.