Section 115 · Losses
Section 115 of the Income-tax Act, 2025 — Set Off and Carry Forward of Losses from a Specified Activity (Owning and Maintaining Race Horses)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter VII
📜 What the law says — Section 115, Income-tax Act 2025
115. (1) Any loss incurred by the assessee in specified activity in any tax year shall
be set off only against income from specified activity.
(2) Where for any tax year, loss computed in respect of a specified activity cannot be
wholly set off under sub-section (1), so much of the loss not so set off or the whole
loss, as the case may be, shall be carried forward to the following tax year and—
(i) be set off against the income, if any, of the specified activity carried on
by him for such tax year; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off
shall be carried forward to the following tax year and so on.
(3) No loss shall be carried forward under this section for more than four tax years
immediately succeeding the tax year for which the loss was first computed.
(4) For the purposes of this section—
(a) “horse race” means a horse race upon which wagering or betting may
be lawfully made;
(b) “income by way of stake money” means the gross amount of prize money
received on a race horse or race horses by the owner thereof on account
of the horse or horses or any one or more of the horses winning a par-
ticular position in horse race;
(c) “loss incurred by the assessee in specified activity” means the amount
by which the income by way of stake money, if any, falls short of the
expenditure, not being capital expenditure, incurred wholly and exclu-
sively for maintaining race horses;
(d) “race horses” means horses owned and maintained by assessee for run-
ning in a horse race;
(e) “specified activity” means the activity of owning and maintaining race
horses.
Treatment of accumulated losses and unabsorbed depreciation in amalgamation
or demerger, etc.
In plain language
What Section 115 is about
Section 115 of the Income-tax Act, 2025 deals with one very specific and unusual source of income — owning and maintaining race horses. This is the "specified activity". The section lays down how a loss from this activity is set off and carried forward. Because racing is treated as a speculative, high-risk hobby-cum-business, the law refuses to let you use these losses to reduce your salary, house property income, business profits or interest income. The loss lives in its own silo and can only be wiped out by income from owning and maintaining race horses in future years.
This provision is the successor to Section 74A of the Income-tax Act, 1961. The rules are substantially the same; only the section number and the "tax year" terminology have changed under the 2025 Act, effective 1 April 2026.
Who does it apply to
- Owners of race horses who maintain the horses to run them in horse races where betting or wagering is legally permitted.
- Applies to individuals, HUFs, firms, companies — any assessee carrying on this activity.
- It does not apply to casual punters who merely bet on races; their winnings are taxed separately as "winnings from lotteries, betting, gambling" and no expense or loss is allowed at all.
How the loss is computed
The loss from the specified activity is the amount by which income by way of stake money falls short of the revenue (non-capital) expenditure incurred wholly and exclusively for maintaining the race horses.
- Stake money means the gross prize money received when your horse wins or is placed second or in a lower position in a race.
- Maintenance expenditure means feed, stable, training, veterinary care, jockey and similar running costs — but not capital expenditure like buying the horse itself.
- If maintenance cost is more than stake money, the shortfall is your "loss from the specified activity".
Key conditions and limits
- Same-activity set-off only: The loss can be set off only against income from owning and maintaining race horses — never against any other head of income.
- Carry forward limit — 4 years: An unabsorbed loss can be carried forward for a maximum of four tax years immediately following the year in which it was first computed. After that it lapses.
- Continuity of activity: To claim the carried-forward set-off, you must still be carrying on the activity of owning and maintaining race horses in the year you want to absorb the loss. If you have exited the activity, the brought-forward loss cannot be used.
- Return filing: As with other loss carry-forward provisions, the loss must be reported in a return of income filed within the due date under Section 263 (the return-filing provision of the 2025 Act) to be eligible for carry forward.
How it interacts with related sections
- General set-off (Sections 108–112): The normal inter-head and intra-head set-off rules do not rescue a race-horse loss — Section 115 overrides them and ring-fences the loss.
- Other-source income: Owning and maintaining race horses is assessed under "income from other sources", but its loss is governed exclusively by Section 115, not by the general other-sources loss rules.
- Winnings from betting: Casual race-betting winnings are taxed at a flat special rate with no set-off of any loss; Section 115 is only for the owner-maintainer, not the bettor.
Practical implications
- Race-horse ownership is expensive and rarely profitable, so most owners run a maintenance loss every year. Section 115 makes clear this loss will almost always lapse unused unless a big-stake win comes within four years.
- Keep meticulous records separating capital costs (purchase of horse) from revenue maintenance costs — only the latter enters the loss computation.
- File your return on time. A late return kills the right to carry the loss forward.
- Do not expect to shelter your salary or business income with racing losses — the law was written precisely to prevent that.
💡 Example
Worked example 1 — a single loss year. Mr. Verma owns two race horses. In tax year 2026-27 he earns stake money of ₹6,00,000 but spends ₹15,00,000 on stabling, feed, training and jockey fees (all revenue expenses). His loss from the specified activity is ₹15,00,000 − ₹6,00,000 = ₹9,00,000. This ₹9,00,000 cannot touch his ₹40,00,000 salary or his share of firm profits. It is carried forward, to be set off only against future race-horse income, and it must be used by tax year 2030-31 (four years later) or it lapses.
Worked example 2 — carry forward and absorption. Continuing the story, in tax year 2027-28 one horse wins big and Mr. Verma earns net race-horse income of ₹5,50,000. He sets off ₹5,50,000 of the brought-forward ₹9,00,000 loss, bringing his taxable race-horse income to nil. The remaining ₹3,50,000 is carried forward further. If he earns enough race-horse income within the four-year window it gets absorbed; if not, the ₹3,50,000 is permanently lost — it can never offset his other income.
A relatable story. Priya, a Mumbai businesswoman, took up race-horse ownership as a passion project, imagining she could use the heavy annual losses to cut the tax on her thriving textile business. Her chartered accountant gently explained Section 115: the racing loss is locked in its own box, usable only against future stake money, and only for four years. Priya realised her hobby would be a pure passion expense, not a tax shield — and she budgeted for it accordingly.
| Feature | Rule under Section 115 (Act, 2025) |
|---|
| Specified activity | Owning and maintaining race horses (for legal horse races) |
| What the loss can be set off against | Only income from owning and maintaining race horses |
| Set-off against salary / business / other income | Not permitted |
| Loss computation | Maintenance expenditure (revenue, not capital) minus stake money |
| Maximum carry-forward period | 4 tax years after the year of first computation |
| Continuity requirement | Activity must still be carried on in the set-off year |
| Return filing condition | Loss return must be filed by the due date to carry forward |
| Corresponding 1961 Act section | Section 74A |
Related sections
Section 74A (Act, 1961) — Loss from owning and maintaining race horses (predecessor) Section 108 — Set off of loss within the same head of income Section 109 — Set off of loss against income under another head Section 112 — Carry forward and set off of business losses Section 263 — Return of income and due dates for filing
Frequently asked questions
What exactly is the 'specified activity' in Section 115?
It is the activity of owning and maintaining race horses that are run in horse races where betting or wagering is legally permitted. It is a narrow, specific activity — nothing else qualifies as a specified activity under this section.
Can I set off my race-horse loss against my salary or business income?
No. Section 115 ring-fences the loss so it can be set off only against income from owning and maintaining race horses. It can never reduce salary, house property, business or other income.
For how many years can the loss be carried forward?
A maximum of four tax years immediately following the year in which the loss was first computed. Any unabsorbed loss remaining after four years lapses permanently.
Is betting on horse races the same as this specified activity?
No. Section 115 applies to owners who maintain race horses. Casual winnings from betting on races are taxed at a flat special rate with no deduction or loss set-off allowed at all.
How is the loss amount calculated?
It is the amount by which the stake money (prize money) you receive falls short of the revenue expenditure incurred wholly and exclusively to maintain the race horses. Capital costs like buying the horse are excluded.
Do I need to file my return on time to carry the loss forward?
Yes. Like other loss carry-forward provisions, the loss must be declared in a return of income filed within the due date; a belated return generally forfeits the right to carry it forward.
Which old section does Section 115 replace?
It corresponds to Section 74A of the Income-tax Act, 1961. The substance is unchanged; the 2025 Act renumbers it and uses the 'tax year' terminology, effective 1 April 2026.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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