Section 74A of the Income Tax Act, 1961, provides specific rules for the treatment of losses incurred from owning and maintaining race horses. This provision is distinct from other loss provisions due to its restrictive nature.
1. Applicability of Section 74A
- Applies onlyto losses arising from:
- Owning race horses
- Maintaining race horses(including training, stabling, and related expenses).
- Does not applyto:
- Betting or gambling income (covered under Section 115BB).
- Professional horse racing businesses (treated as regular business).
2. Set-Off Rules (Same Year)
A. Intra-Head Adjustment [Section 70]
- Losses can only be set off against income from the same activity(i.e., profits from owning/maintaining race horses).
- Cannot be set offagainst:
- Salary income
- Business income
- Capital gains
- Other speculative income.
Example:
- Loss from race horses: ₹3,00,000
- Income from race horses: ₹1,50,000
- Net Loss: ₹1,50,000(carried forward).
B. Inter-Head Adjustment [Section 71]
- Not allowed– Race horse losses cannot be adjusted against any other income head.
3. Carry Forward of Losses
| PARAMETER | RULE |
| Carry Forward Period | 4 assessment years (from the year of loss) |
| Future Set-Off | Only against income from race horses (no other income) |
| Filing Requirement | Must file ITR by the due date (Section 139(1)) |
| Lapsing of Loss | Loss lapses if not utilized within 4 years |
Example:
- AY 2024-25: Loss = ₹2,00,000 (filed on time)
- AY 2025-26: Income = ₹50,000 → Adjusted
- AY 2026-27: Income = ₹1,00,000 → Adjusted
- AY 2027-28: No income → Loss expires after AY 2028-29.
4. Key Restrictions & Conditions
- Strict Filing Deadline
- If the return is filed late, the loss cannot be carried forward.
- No Business Loss Treatment
- Even if treated as a business, losses fall under Section 74A, not Section 72.
- No Exception for Professionals
- Professional horse breeders/trainers cannotclaim broader set-off.
5. Comparison with Other Loss Types
| FEATURE | RACE HORSE LOSS (SEC 74A) | SPECULATIVE LOSS (SEC 73) | BUSINESS LOSS (SEC 72) |
| Set-Off Against | Only race horse income | Only speculative profits | Any business income |
| Carry Period | 4 years | 4 years | 8 years |
| Filing Deadline | Strict | Strict | Strict |
| Inter-Head Adjustment | No | No | Yes (limited) |
6. Practical Implications
- Tax Planning: Since losses are ring-fenced, taxpayers must generate future race horse incometo utilize them.
- Compliance: Must file returns on timeto preserve loss benefits.
- No Benefit for Casual Bettors: Losses from betting (not owning horses) cannotbe adjusted.
