Section 114 of the Income-tax Act, 2025 — Set Off and Carry Forward of Losses of Specified Business

In plain language

What Section 114 actually says

Section 114 of the Income-tax Act, 2025 (effective 1 April 2026, as amended by the Finance Act, 2026) is a special "ring-fencing" provision for losses of a specified business. A specified business is one referred to in Section 46 of the 2025 Act — the section that grants a 100% deduction for capital expenditure incurred on certain capital-intensive, nation-building businesses (like cold chains, warehousing for agricultural produce, cross-country pipelines, hospitals with 100+ beds, notified affordable housing, and similar). Section 114 is the direct successor to Section 73A of the old Income-tax Act, 1961, and the "specified business" concept it relies on is the successor to old Section 35AD.

In plain words, Section 114 lays down two firm rules:

• Rule 1 — same-basket set-off only: A loss from a specified business can be set off only against the profit of another specified business in the same year. It cannot touch salary, house property, ordinary business profit, capital gains or any other income.
• Rule 2 — indefinite carry forward: Any part of the loss that cannot be absorbed is carried forward to the next tax year and, again, can be set off only against profits of a specified business. There is no time limit — it can be carried forward indefinitely until fully absorbed.

Who this applies to

This section is relevant only to taxpayers (individuals, firms, LLPs, companies, etc.) who run a specified business under Section 46 and have claimed — or are eligible to claim — the investment-linked capital-expenditure deduction. Because Section 46 allows the entire capital cost to be written off up front, these businesses very often report a heavy loss in their early years. Section 114 tells you exactly how that loss can be used.

• You must actually be carrying on a business that qualifies as "specified" under Section 46.
• The loss enjoys a separate, protected pool — it is deliberately walled off from your normal income so it does not shelter unrelated profits.

Key conditions and limits

• Isolation of the loss: Specified-business loss can never be set off against non-specified income. This is the single most important limit.
• No 8-year cap: Unlike a normal business loss (which is generally limited to 8 assessment/tax years), a specified-business loss can be carried forward without any limit on the number of years.
• Timely return filing: As with other carry-forward provisions in the Act, to be safe you should file your income-tax return by the due date under Section 263 (the 2025 Act's return-filing provision). Carry-forward of losses generally depends on filing the return on time; treat this as a compliance must, not optional.
• Continuity is not strictly required to set off: Once a specified-business loss is carried forward, it can be set off against any specified business in a later year — not necessarily the same one that made the loss.

How it interacts with related sections

• Section 46 defines "specified business" and grants the capital-expenditure deduction that usually creates the loss in the first place.
• Section 112 / 113 (successors to old Sections 72 and 32(2)) deal with normal business losses and unabsorbed depreciation — Section 114 overrides these for specified businesses by imposing the stricter same-basket rule.
• Section 108–110 govern general set-off within and across heads of income; Section 114 is the exception that removes specified-business loss from that general pool.

Practical implications

If you invest in a cold chain, a large hospital or a warehousing facility and claim the Section 46 deduction, expect a large book/tax loss early on. That loss is valuable but restricted: it will only reduce future profits from specified businesses. Investors and CFOs planning such projects should model when the specified business (or a second specified business in the group) will turn profitable, because only then does the carried-forward loss deliver a tax saving. The silver lining is that the loss never expires, so even a long gestation period does not waste it.