Carry Forward and Set off of Losses from Activity of owning and Maintaining Race Horses [Sec. 115]

Section 115 of the Income-tax Act, 2025 provides special rules for the carry forward and set-off of losses from the activity of owning and maintaining race horses. Where the assessee incurs a loss from this activity and it cannot be completely adjusted against eligible income from the same activity during the relevant tax year, the unabsorbed loss may be carried forward. Such loss is ring-fenced and cannot be freely adjusted against income from salary, house property, ordinary business, capital gains or other unrelated sources. The carried-forward loss can be adjusted only against income from the same specified activity, subject to statutory conditions.

1. Meaning of Loss from Owning and Maintaining Race Horses

A loss from the activity of owning and maintaining race horses arises where the allowable expenditure incurred on the specified activity exceeds the income derived from it during the relevant tax year. The activity must involve the assessee’s ownership and maintenance of race horses and must satisfy the conditions prescribed under the Act. Expenses connected with maintaining eligible race horses are considered according to the applicable computation provisions. Where the final result is a loss, special rules apply because such loss is not treated in the same manner as an ordinary business loss. Section 115 specifically governs its carry forward and subsequent set-off.

2. Set-off of Race-Horse Loss

Under Section 115, a loss arising from the activity of owning and maintaining race horses can be set off only against income from the activity of owning and maintaining race horses. It cannot be adjusted against ordinary business profits, salary, house-property income, capital gains or unrelated income from other sources. This restriction creates a separate category for race-horse losses and prevents such losses from reducing other taxable income of the assessee. Where sufficient income from the specified activity is available, the eligible loss may be absorbed against that income. Any balance remaining after the permissible adjustment may be carried forward according to Section 115.

3. Carry Forward of Race-Horse Loss

Where the loss from owning and maintaining race horses cannot be wholly set off during the relevant tax year, Section 115 permits the eligible unabsorbed amount to be carried forward to subsequent tax years. In a later year, the brought-forward loss can be adjusted only against income arising from the activity of owning and maintaining race horses. Its character does not change merely because it has been carried forward. If sufficient eligible income is unavailable in a subsequent year, the remaining loss may continue to be carried forward within the statutory period. Thus, Section 115 maintains the ring-fenced treatment of such losses across tax years.

4. Period of Carry Forward

Loss from the activity of owning and maintaining race horses may be carried forward for a maximum of four tax years immediately succeeding the tax year for which the loss was first computed. During this period, the brought-forward loss can be set off only against eligible income from the same specified activity. Where only part of the loss is absorbed in a subsequent year, the remaining balance may continue to be carried forward within the original four-year period. After expiry of the prescribed period, any unabsorbed loss ordinarily lapses. Therefore, the assessee should maintain proper year-wise records of the loss, set-off and balance carried forward.

5. Conditions for Carry Forward and Set-off

To obtain the benefit of carry forward and set-off under Section 115, the assessee must satisfy the conditions prescribed under the Income-tax Act, 2025. The loss must arise from the qualifying activity of owning and maintaining race horses and must be properly determined under the applicable computation provisions. Compliance with the relevant return-filing and loss-determination requirements is also important for preserving the right to carry forward the loss. In subsequent years, set-off is restricted exclusively to income from the same activity. Accordingly, proper documentation of income, eligible expenditure and previous losses is necessary to establish the amount available for future adjustment.

illustration

Suppose an assessee earns ₹2,00,000 from the activity of owning and maintaining race horses but incurs allowable expenditure of ₹5,00,000.

If the assessee earns ₹1,20,000 from the same activity in the following tax year:

The remaining ₹1,80,000 may continue to be carried forward within the prescribed four-tax-year limit.