Section 74A of ITA, 1961 : Section 74A: Losses From Certain Specified Sources Falling Under The Head Income From Other Sources

Explanation using Example

Imagine Mr. Arjun, who owns several race horses and participates in horse racing events. In the financial year 2022-2023, Mr. Arjun incurs a loss of ₹500,000 from maintaining his race horses. He has no other income from this activity, but he earns ₹300,000 from a rental property he owns.

Under Section 74A(3) of the Income-tax Act, 1961, Mr. Arjun cannot set off the ₹500,000 loss from his horse racing activity against his rental income. Instead, he can only carry forward this loss to the next assessment year, 2023-2024.

In the assessment year 2023-2024, if Mr. Arjun earns an income of ₹600,000 from horse racing, he can set off the carried forward loss of ₹500,000 against this income, reducing his taxable income from horse racing to ₹100,000. If he had no income from horse racing in 2023-2024, he could continue to carry forward the loss to the next year, but not beyond the fourth assessment year from 2022-2023.