Section 71 of Income Tax Act "Set off of loss from one head against income from another"
71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has no income under the head "Capital gains", he shall, subject to the provisions of this Chapter, be entitled to have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.
(2) Where in respect of any assessment year, the net
result of the computation under any head of income, other
than "Capital gains", is a loss and the assessee has income
assessable under the head "Capital gains", such loss may,
subject to the provisions of this Chapter, be set off
against his income, if any, assessable for that assessment
year under any head of income including the head "Capital
gains" (whether relating to short-term capital assets or any
other capital assets).
(2A) Notwithstanding anything contained in sub-section (1)
or sub-section (2), where in respect of any assessment year,
the net result of the computation under the head "Profits
and gains of business or profession" is a loss and the
assessee has income assessable under the head "Salaries",
the assessee shall not be entitled to have such loss set off
against such income.
(3) Where in respect of any assessment year, the net result
of the computation under the head "Capital gains" is a loss
and the assessee has income assessable under any other head
of income, the assessee shall not be entitled to have such
loss set off against income under the other head.
(3A) Notwithstanding anything contained in sub-section (1)
or sub-section (2), where in respect of any assessment year,
the net result of the computation under the head "Income
from house property" is a loss and the assessee has income
assessable under any other head of income, the assessee
shall not be entitled to set off such loss, to the extent
the amount of the loss exceeds two lakh rupees, against
income under the other head.
(4) Where the net result of the computation under the head
"Income from house property" is a loss, in respect of the
assessment years commencing on the 1st day of April, 1995
and the 1st day of April, 1996, such loss shall be first set
off under sub-sections (1) and (2) and thereafter the loss
referred to in section 71A shall be set off in the relevant
assessment year in accordance with the provisions of that
section.
71A. Where in respect of the assessment year commencing on the 1st day of April, 1993 or the 1st day of April, 1994, the net result of the computation under the head "Income from house property" is a loss, such loss in so far as it relates to interest on borrowed capital referred to in clause (vi) of sub-section (1) of section 24 and to the extent it has not been set off shall be carried forward and set off in the assessment year commencing on the 1st day of April, 1995, and the balance, if any, in the assessment year commencing on the 1st day of April, 1996, against the income under any head.