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Set Off and Carry Forward of Losses

STRUCTURE

Introductions

  1. Set Off of Loss from one Source against Income from another source under the same head of income.[Sec.70]

  2. Set Off of Loss from one Head against income from another. [Sec.71]

  3. Carry forward and set off of Loss under the head ‘Income from House Property’. [Sec.71 B]

  4. Carry Forward and Set Off of Business Losses [Sec.72]

  5. Losses in Speculation Business [Sec.73]

  6. Losses under the head “Capital Gains’. [Sec.74]

  7. Losses from certain specified sources falling under the head ‘Income from Other Sources’. [Sec.74 A]

  8. Table showing Set Off and Carry Forward of Losses

INTRODUCTIONS

The process of setting off of losses and their carry forward may be covered in the following Steps:

Step-1 :           Inter-Source adjustment under the same head of income

Step-2 :           Inter-head adjustment in the same assessment year and will be applied only if a loss cannot be set off under Step-1.

Step-3 :            Carry Forward of Loss is applied only if a loss cannot be set off under Step-1 & Step-2

1.      SET OFF OF LOSS FROM ONE SOURCE AGAINST INCOME FROM ANOTHER SOURCE UNDER THE SAME HEAD OF INCOME [Sec. 70 ]

If the net result for any assessment year in respect of any source falling under any head of income, other than “Capital gains”, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.

Exceptions :

    1. Loss from speculation business ;

    2. Long-Term Capital Loss ;

    3. Loss from the activity of owning and maintaining race houses ;

    4. Loss can not be set off against winnings from lotteries, crossword puzzles, etc. ;

    5. Loss from sale of Securities.

2.      SET OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER [Sec. 71]

If the Net Result of the computation under any head of income, other than “Capital gains”, is a loss , the same can be set off against the income from other heads subject to the following exceptions…

    1. Loss from speculation business can not be set off against any other income

    2. Long-Term Capital Loss ; which can only set off against “Capital Gain”.

    3. Loss from the activity of owning and maintaining race houses ; which can not be set off against any other income.

    4. Loss can not be set off against winnings from lotteries, crossword puzzles, etc. ;

    5. Loss from sale of Securities.

    6. Business Loss can not be set off against Salary Income.

3.      CARRY FORWARD AND SET OFF OF LOSS UNDER THE HEAD “INCOME FROM HOUSE PROPERTY”. [ Sec. 71 B ]

Any Loss under the head “Income from house property” cannot be wholly set off against income from any other head. If such Loss can not be set off, then the whole loss shall be carried forward to the following assessment year and—

(i)  be set off against the income from house property for that assessment year; and

(ii)  the loss, if any, which has not been set off wholly shall be carried forward to the following assessment year  not more than (8) eight assessment years immediately succeeding the assessment year for which the loss was first computed.

4.      CARRY FORWARD AND SET OFF OF BUSINESS LOSSES. [ Sec. 72]

The right of carry forward and set off of loss arising in a business or profession is subject to the following restrictions :
1. Loss can be set off only against Business Income :          A loss to the assessee under the head “Profits and gains of business or profession”, and such loss cannot be or is not wholly set off against income under any head of income and he has no income under any other head, the whole loss shall be carried forward to the following assessment year, and—

(i)  it shall be set off against the profits and gains, if any, of any business or profession carried on by him ;

(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 assessment year and so on :

2.         Loss can be carried forward for 8 Years :      No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed.

3.        Return of Loss should be submitted in Time : A Loss can not be carried forward unless it is determined in pursuance of a Return Filed within the time allowed.

5.      LOSSES IN SPECULATION BUSINESS [ Sec. 73]

1. Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains of another speculation business.

2. Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off,  the whole loss where the assessee had no income from any other speculation business, shall be carried forward to the following assessment year, and—

(i)  it shall be set off against the profits and gains of any speculation business and

(ii)  The loss which cannot be wholly so set off shall be carried forward to the following assessment year and so  on.

3. No loss shall be carried forward under this section for more than 4 [four] assessment years immediately succeeding the assessment year for which the loss was first computed.

4.Return of Loss should be submitted in Time : A Loss can not be carried forward unless it is determined in pursuance of a Return Filed within the time allowed.

6.      LOSSES UNDER THE HEAD “CAPITAL GAINS” [ Sec. 74 ]

1.   In case of any Loss under the head “Capital gains”, the whole loss shall be carried forward to the following assessment year, and—

(a) Any loss relates to a short-term capital asset shall be set off against income, from “Capital gains”.

(b) Any loss relates to a long-term capital asset shall be set off against income from “Capital gains” assessable for that assessment year in respect of any other capital asset other than a short-term capital asset;

(c) if the loss cannot be wholly so set off shall be carried forward to the following assessment year and so on.]

2. No loss shall be carried forward for more than (8) eight assessment years immediately succeeding the assessment year for which the loss was first computed.

7.      LOSSES FROM CERTAIN SPECIFIED SOURCES FALLING UNDER THE HEAD “INCOME FROM OTHER SOURCES” [ Sec. 74A ]

The amount of loss incurred by the assessee in the activity of owning and maintaining race horses in any assessment year shall not be set off against income from any source other than the activity of owning and maintaining race horses in that year and shall be carried forward to the following assessment year and—

(a)  it shall be set off against the income from the activity of owning and maintaining race horses assessable for that assessment year :

(b)  if the loss cannot be wholly so set off shall be carried forward to the following assessment year and so on; so, however, that no portion of the loss shall be carried forward for more than 4 assessment years immediately succeeding the assessment year.

8.      TABLE SHOWING SET OFF AND CARRY FORWARD OF LOSSES

Head of income under which Loss is incurred

Whether loss can be set off within the same year

Whether Losses can be carried forward and set off in subsequent years.

Time limit for carry forward and set off of losses

 

Under the same head

Under any other Head

Under the same head

Under any other Head

 

1. Income from Salaries

NA

NA

NA

NA

NA

2. Income from House Property

Yes

Yes

Yes

No

8 years

3. Profit and gain from Business or Professions :    

 

 

 

 

 

   a. Non-speculation Business

Yes

Yes

Yes

No

8 years

   b. Speculation Business

Yes

No

Yes

No

8 years

   c. Unabsorbed Depreciation

Yes

Yes

Yes

No

N.A.

   d. Unabsorbed Investment or                 Development allowance.

Yes

Yes

Yes

Yes

8 years

4. Capital Gain (Short-Term)

Yes

No

Yes

No

8 years

5. Capital Gain (Long -Term)

Yes

No

Yes

No

8 years

6. Income from Other Sources:

 

 

 

 

 

   a. Lotteries, Crossword, Puzzle, Card Games, Gambling, or betting of any form.

Yrs

No

No

No

NIL

   b. Loss from activity of owning and maintaining Race Horses

Yes

No

Yes

No

4 Years

   c. Other Income

Yes

Yes

No

No

NIL

 
 
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