Section 111 - Carry forward and set off of loss from Capital gains
Capital loss that remains after current-year capital-gains adjustment may be carried for eight tax years. Brought-forward short-term capital loss can absorb any capital gain; brought-forward long-term capital loss can absorb only long-term capital gain.
Reviewed by CA Nikhil Gupta · Updated 9 October 2026
Current-law control
This page uses the consolidated Income-tax Act, 2025 as amended by the Finance Act, 2026. The Act and Income-tax Rules, 2026 operate from 1 April 2026. Earlier years and saved proceedings remain subject to the repeal-and-savings framework.
Primary statute: Income Tax Department consolidated Act | Rules: Notified Income-tax Rules, 2026
2-minute decode
Capital loss that remains after current-year capital-gains adjustment may be carried for eight tax years. Brought-forward short-term capital loss can absorb any capital gain; brought-forward long-term capital loss can absorb only long-term capital gain.
Who should use this section
Taxpayers with current-year or carried-forward losses under the relevant head or specified activity This applicability note is specific to section 111.
Old-law bridge
1961 Act section 74
The bridge is navigational only. A 1961 Act case or rule is carried forward only after checking wording, transition provisions and the current 2025 Act text.
Professional alert
Exception / professional alert A return satisfying section 263(1) is required for carry-forward under section 121. Maintain separate year-wise ledgers for short-term and long-term loss.
Connected Income-tax Rules, 2026 and Forms
No provision-specific Rule/Form is independently mapped in this tranche. General return, procedure and evidence rules can still apply.
Worked application
A long-term capital loss of ₹6 lakh is carried from tax year 2026-27. In the next year the taxpayer has short-term capital gain of ₹8 lakh and long-term capital gain of ₹2 lakh. Only ₹2 lakh of the carried long-term loss can be used; ₹4 lakh continues and the short-term gain remains outside that set-off.
Evidence / compliance checklist
- Build a section 111 loss ledger showing source, head, tax year of origin, amount used and balance carried forward.
- Preserve the timely return and assessment/intimation that determines the loss where the statute makes filing a condition (section 111: Carry forward and set off of loss from Capital gains).
- For reorganisations, retain scheme orders, ownership continuity, asset/business continuity and predecessor-successor tax records (section 111: Carry forward and set off of loss from Capital gains).
- Prevent double use by reconciling the carry-forward schedule to each later return before set-off (section 111: Carry forward and set off of loss from Capital gains).
Common mistake
Using a single “loss carried forward” figure for section 111 without preserving head/source restrictions, filing conditions and the remaining statutory period.
Recommended approach
For section 111, fix the governing tax year, identify the operative sub-section for “Carry forward and set off of loss from Capital gains”, trace every amount to evidence, apply only verified Rule/Form links, and retain a computation that another reviewer can reproduce from the primary source.
Thresholds, periods and timing checkpoints
- 111. (1)(a) Where for any tax year, loss computed under the head “Capital gains”
- may be, shall be carried forward to the following tax year and shall be set off in the
- that tax year in respect of any other capital asset;
- that tax year in respect of any other long-term capital asset; and
- set off shall be carried forward to the following tax year and so on.
- (2) No loss shall be carried forward under this section for more than eight tax years
- immediately succeeding the tax year for which the loss was first computed.
Judicial / interpretive bridge
No section-specific Supreme Court bridge is included for section 111 unless text-equivalence with the 2025 Act has been checked. Legacy cases should not be transplanted into section 111 merely because the subject is similar.
Related provisions
Current statutory text
Primary-source trail
FAQs
What does section 111 of the Income-tax Act, 2025 cover?
Section 111 covers carry forward and set off of loss from capital gains. The operative result depends on the exact statutory conditions shown on this page and applies from 1 April 2026, subject to transition/savings provisions.
Who should check section 111?
Taxpayers with current-year or carried-forward losses under the relevant head or specified activity This applicability note is specific to section 111.
Are there specific Rules or Forms for section 111?
No provision-specific Rule/Form independently mapped in this tranche.