SET OFF AND CARRY FORWARD OF LOSSES

Mode of Carry Forward & Set off 1. Inter – source adjustment under the head of income (intra head adjustment) 2. Inter – head adjustment in the same assessment year. 3. Carry forward of loss.

Inter Source Adjustment (Sec 70 ) If the net result for any assessment year, in respect of any source under any head of income, is a loss, the assessee is entitled to have the amount of such loss set off against his income from any other source under head of income for the same assessment year.

Example The Loss of Rs can be set off with his Profit of Rs Therefore the amount taxable under the head Profit & Gains from Business will be ( – ) Rs X has two businesses – A & B. Profit From Business A Rs Loss From Business B Rs

Rules

Inter Head Adjustment (Sec 71) Where the net result of computation made for any assessment year in respect of any head of income is a loss, the same can be set off against the income from other heads.

Example The Net Loss from both businesses of Rs ( ) can be set off with House Property income of Rs Therefore the net income taxable is Rs X has two non speculative businesses A & B. Besides he has income from house property. Profit From Business A Rs Loss From Business B Rs Income from House property Rs

Rules

Exceptions Speculation Loss – Cannot be set off against any other head. Speculation Loss – Cannot be set off against any other head. Capital Loss - Cannot be set off against any other head except ‘Capital Gains’. Capital Loss - Cannot be set off against any other head except ‘Capital Gains’. Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head. Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head. Business loss cannot be set off with Salary. Business loss cannot be set off with Salary. Loss cannot be set off against winnings from lotteries, crossword puzzles etc. Loss cannot be set off against winnings from lotteries, crossword puzzles etc. Loss from purchase of securities. Loss from purchase of securities.

Carry Forward of Losses The following losses can be carried forward: - Loss under the head “Income from House Property”. Loss under the head “Income from House Property”. Loss under the head “Profits and Gains from Business or Profession”. Loss under the head “Profits and Gains from Business or Profession”. Loss under the head “Capital Gains”. Loss under the head “Capital Gains”. Loss from the activity of owning and maintaining race horses. Loss from the activity of owning and maintaining race horses.

Carry forward of Bussiness loss other than Speculative loss Loss can be set off only against business income. Loss can be set off only against business income. Losses can be carried forward by the person who incurred the loss. Losses can be carried forward by the person who incurred the loss. Loss can be carried forward for 8 years. Loss can be carried forward for 8 years. Return of loss should be submitted in time. Return of loss should be submitted in time. Continuity of business not necessary. Continuity of business not necessary. Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses. Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses.

Speculation Bussiness Sec 43(5) Transaction involving purchase or sale of any commodity Periodically settledActual delivery Transfer of commodity or scripts

Carry Forward of speculative Losses Speculative loss can be set off only against speculative income. Speculative loss can be set off only against speculative income. Can be carried forward for 4 years. Can be carried forward for 4 years. Continuity of Business is not necessary. Continuity of Business is not necessary. Return of Loss should be submitted in time. Return of Loss should be submitted in time.

Carry Forward of Capital Losses Long term capital loss can be set off only against long term capital gains. Long term capital loss can be set off only against long term capital gains. Short term can be set off against short term or long term capital gains. Short term can be set off against short term or long term capital gains. Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed. Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed. Such loss can be carried forward unless return is filed within the time limit of the section. Such loss can be carried forward unless return is filed within the time limit of the section.

Carry forward and set off of loss from the activity of Owing & Maintianence of Race Horses Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses. Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses. Loss can be carried forward for four assessment years immediately succeeding the assessment year in which the loss was first computed. Loss can be carried forward for four assessment years immediately succeeding the assessment year in which the loss was first computed. Such loss cannot be carried forward unless return is filed within the time limit of section 139(1). Such loss cannot be carried forward unless return is filed within the time limit of section 139(1).

Carry forward and loss of House Property Loss can be carried forward for eight assessment years. Loss can be carried forward for eight assessment years.

Example Income from House I – Income from House I – Loss from House II – (30000) Loss from House II – (30000) NET INCOME NET INCOME He has brought forward losses H1 (98-99) 30000, H2 ( ) He has brought forward losses H1 (98-99) 30000, H2 ( ) H1 loss will be ignored H1 loss will be ignored. Loss of will be adjusted with Loss of will be adjusted with Therefore 5000 will be carried forward. Therefore 5000 will be carried forward.

Provisions in Brief Type of Loss to be carried forward to the next year(s) Income against which carried forward loss can be set off in next year(s) Years HOUSE PROPERTY LOSSINCOME FROM HOUSE PROPERTY8 YEARS. SPECULATION LOSSSPECULATION PROFITS4 YEARS. NON SPECULATION BUSINESS LOSS: Unabsorbed Depreciation, Scientific Research & Family Planning Expenditure ANY INCOMENO TIME LIMIT Other Business LossesSPECULATIVE AND NON SPECULATIVE8 YEARS SHORT TERM CAPITAL LOSSSHORT AND LONG TERM GAINS8 YEARS LONG TERM CAPITAL LOSSLONG TERM CAPITAL GAINS8 YEARS LOSS FROM ACTIVITY OF OWNING & MAINTAINING RACE HORSES INCOME FROM SUCH ACTIVITY4 YEARS