Inter-Head Set Off and Its Restrictions (Section 71)
## Inter-Head Set Off (Section 71) — Restrictions
### General Rule
If income under the same head is insufficient to set off losses, those losses can be set off against income of OTHER HEADS (in the same year).
### Losses That CANNOT Be Set Off Against Other Heads
Loss Type
Cannot Be Set Off Against Other Heads
Speculative Business Loss
❌
Specified Business Loss
❌
LTCL
❌
Loss from Owning & Maintaining Race Horses
❌
PGBP Loss (Business Loss)
❌ Cannot set off against Salary
House Property Loss
✅ Allowed but capped at ₹2 Lakh
### Two Special Cases to Remember
#### 1. Normal Business Loss → Cannot offset Salary
→ PGBP loss CAN be set off against any head EXCEPT Salary.
#### 2. House Property Loss → Capped Set Off
→ House Property loss can be set off against any other head (including Salary), BUT only up to a maximum of ₹2,00,000.
→ Excess HP loss is carried forward.
### Default Tax Regime (115BAC) Restrictions on HP Loss
Status / Regime
Intra Head
Inter Head
Ind/HUF/AOP/BOI/AJP — Opted OUT of 115BAC (old regime)
✅ Allowed
✅ Allowed (up to ₹2L)
Ind/HUF/AOP/BOI/AJP — Under 115BAC (default new regime)
✅ Allowed
❌ NOT Allowed
Company / Firm / LLP / Co-op Society (irrespective of regime)
✅ Allowed
✅ Allowed (up to ₹2L)
Worked example
### Example 1
Example 1 — Business Loss vs Salary:
Mr. X has Salary ₹10 Lakhs, Business Loss ₹3 Lakhs, Interest Income ₹50,000.
Analysis:
Business loss can be set off against Interest Income only — NOT salary.
Set off ₹50K against interest → ₹2,50,000 business loss carried forward.
Salary ₹10L taxable in full.
Example 2 — HP Loss Capping:
Mrs. Y has Salary ₹15 Lakhs, HP Loss ₹5 Lakhs, opted out of 115BAC (old regime).
Analysis: HP loss can be set off against salary, BUT capped at ₹2,00,000.
₹2L set off against salary → Taxable salary = ₹13L.
Balance HP loss ₹3,00,000 carried forward.
Example 3 — HP Loss Under Default 115BAC:
Same as above, but Mrs. Y is under default 115BAC (new regime).
Analysis: Inter-head set off of HP loss is NOT allowed under 115BAC.
Entire ₹5L HP loss carried forward.
Taxable salary = ₹15L.
⚠️ Common exam mistakes
Setting off business loss against salary — explicitly NOT allowed.
Setting off HP loss exceeding ₹2 Lakh against other heads in current year.
Allowing HP loss inter-head set off under default 115BAC regime — not permitted for Ind/HUF/AOP/BOI/AJP.
Applying the ₹2 Lakh cap to companies — for companies, irrespective of regime, the ₹2L cap applies but no regime restriction.
Assuming LTCL/Speculative loss can be set off across heads — they are restricted intra-head only.
Bare-Act text Sections 71 and 71B · Income-tax Act, 1961 · click to expand
If Income under same head is not sufficient to Set Off the Losses, then those Losses can be set off with the Income under Other Heads. All 4 of the above mentioned Losses (Speculative, Specified Business, LTCL, Race Horses), Loss under PGBP (cannot set off against Salary), Loss from House Property (allowed upto ₹2 Lakh).