Clubbing of Income, Set Off and Carry Forward of Losses

Two sets of rules adjust total income after each head is computed. Clubbing provisions add to an individual's income certain income that legally belongs to others, to stop tax being reduced by shifting income within the family. Set off and carry forward rules decide how losses under one head or one year reduce income under another. This note covers both under the Income-tax Act, 2025.

1. Clubbing of Income

Figure 1: Sections 96, 97 and 99

• Transfer of income, s.96 (old s.60). Where a person transfers income without transferring the asset that produces it, the income remains taxable in his hands.
• Revocable transfer, s.97 (old ss.61 to 63). Income from an asset transferred under a revocable transfer is taxed in the hands of the transferor.
• Spouse, s.99 (old s.64). Remuneration of a spouse from a concern in which the individual has a substantial interest is clubbed, unless the spouse has technical or professional qualifications to which the income is attributable; income from assets transferred to the spouse without adequate consideration is clubbed, except under an agreement to live apart.
• Son's wife and minor child. Income from assets transferred to the son's wife without adequate consideration is clubbed with the transferor; a minor child's income is clubbed with the parent whose income is higher, except income from manual work or the child's own skill or talent, or of a disabled child.
• Liability, s.100. Where income is included in another person's total income, the person in whose name the asset stands may be called on to pay the tax attributable to it.

2. Set Off in the Same Year

• Within a head, s.108 (old s.70). A loss from one source is set off against income from another source under the same head; but a long term capital loss only against long term gains, and a speculation loss only against speculation income.
• Across heads, s.109 (old s.71). A remaining loss may be set off against income under other heads, but a business loss cannot be set off against salaries, a capital loss cannot be set off against other heads, and a house property loss can be set off against other heads only up to Rs 2 lakh.
• New regime. Under the new tax regime, a house property loss cannot be set off against other heads.

3. Carry Forward

Figure 2: Set off and carry forward rules

• House property, s.110. Carried forward for eight years, against house property income only.
• Capital loss, s.111. Carried forward for eight years; a long term loss only against long term gains.
• Business loss, s.112. Carried forward for eight years against business income, even if the business is discontinued.
• Speculation, s.113. Carried forward for four years against speculation income only.
• Unabsorbed depreciation. Carried forward without time limit.
• Return requirement, s.121 (old s.80). Business, speculation and capital losses can be carried forward only if the return for the year of loss is filed within the due date; this does not apply to house property loss or unabsorbed depreciation.

4. Frequently Asked Questions

Can a business loss be set off against salary income?

No. A business loss can be set off against income under any other head except salaries in the same year, and the remainder is carried forward for eight years against business income.

Is a minor child's prize money from a talent competition clubbed with the parent?

No. Income of a minor child from manual work or from activity involving the child's own skill, talent or specialised knowledge is not clubbed.

5. Related Topics

• Topic 14: Income from House Property. House property losses.
• Topic 16: Capital Gains. Capital losses.
• Topic 19: Deductions, Rebate and the Tax Regimes. From gross total income to total income.