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Tax Loss Set-Off & Carry Forward Guide

The document outlines guidelines for setting off and carrying forward losses under different income heads in India. It states that losses can first be set off against income from other sources within the same head, and then against other heads. Specifically, it mentions: - Loss from house property can be set off against other house property income and up to Rs. 2 lakhs against other heads. Any remaining loss can be carried forward for up to 8 years only against house property income. - Business losses can be set off against other heads except salary, and carried forward for up to 8 years against the same business. - Capital losses can only be set off against capital gains of the same type, and carried forward for up

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77 views1 page

Tax Loss Set-Off & Carry Forward Guide

The document outlines guidelines for setting off and carrying forward losses under different income heads in India. It states that losses can first be set off against income from other sources within the same head, and then against other heads. Specifically, it mentions: - Loss from house property can be set off against other house property income and up to Rs. 2 lakhs against other heads. Any remaining loss can be carried forward for up to 8 years only against house property income. - Business losses can be set off against other heads except salary, and carried forward for up to 8 years against the same business. - Capital losses can only be set off against capital gains of the same type, and carried forward for up

Uploaded by

mushfeqa
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

GUIDELINES FOR SET OFF AND CARRY FORWARD OF LOSSES

.
Inter-source Set-off: Loss from one source is to be first set off against income from another source, if any,
under the same head.
Inter-head Set-off: Loss under one head is to be then set off against income from another head.

 LOSS FROM HOUSE PROPERTY shall first be set off against income from other house or houses
and the balance shall be set off against income under other heads (upto a maximum of Rs. 2 lakhs) in the
same assessment year. However, any amount not set off and hence carried forward can be set off against
Income from House Property only, upto a maximum period of 8 subsequent assessment years.
 LOSS UNDER THE HEAD “PROFITS AND GAINS OF BUSINESS OR PROFESSION” can be
set off against other heads (except Salaries) except loss on speculation business, which can be set off
against profits of speculation business only. However, any loss carried forward can be set off
against income under the same head only, which is allowed upto a maximum period of 8 subsequent
assessment years (only 4 years for speculation loss). Existence of the same business is not necessary.
 LOSS UNDER THE HEAD “CAPITAL GAINS” cannot be set off against income under any
other head. Again, long-term capital loss can be set off against long-term capital gain only.
However, short-term capital loss can be set off against any income under the head Capital Gains
(whether short-term or long-term). The same rule applies for carry forward as well, which is allowed
upto a maximum period of 8 subsequent assessment years.
 LOSS UNDER THE HEAD “INCOME FROM OTHER SOURCES”: Loss from owning and
maintaining race horses can be set off against profits from the same activity only. Carry forward of any
such loss is allowed only upto a maximum period of 4 subsequent assessment years.
REMEMBER :
 No loss can be set off against winning from lotteries, crossword puzzles, races, card games,
gambling, betting etc. Similarly, losses under any of these items cannot be set off against any
income whatsoever.
 Loss under other heads can be set off against capital gains, income from speculative business and
income from owning and maintaining race horses.
 For carry forward of loss, the source need not necessarily be continued except for loss from owning and
maintaining race horses.
 To be eligible for carrying forward of loss, return must be filed within the specified time, except loss
from house property, which can be carried forward even when a belated return is filed.
 Losses on account of unabsorbed depreciation, capital expenditure on scientific research and family
planning are allowed to be carried forward for indefinite period and set off against any income except
salaries and casual income. Also, it is not essential to submit the return of loss within specified time.
 “Speculative transaction” means a transaction in which the contract for purchase and sale of any
commodity including stock and shares is periodically or ultimately settled otherwise than by actual
delivery or transfer of the commodity or scrips.
 Where a loss arises from illegal speculative business, it cannot be carried forward for set off against the
profits of another speculative business. [ CIT vs. Kurji Jinabhai Kotecha ]
 Share of profit from a firm is exempt from tax u/s 10(2A). Share of loss of a firm is carried forward by
the firm itself; the partners are not allowed to do so.
 Loss from a source, income of which is exempt u/s 10 cannot be set off against any taxable income.
[ Ramjilal vs.CIT ]
 In the process of setting off of business losses and unabsorbed depreciation, the following order is
recommended :
 Current year’s depreciation;
 Brought forward business loss;
 Brought forward unabsorbed depreciation.

If the assessee exercises option u/s 115 BAC:


1. Loss from House Property cannot be set off against any other income.
2. Total income will be calculated without adjusting brought forward loss (and/or additional depreciation)
from any earlier year if such loss / additional depreciation pertains to any deduction under the specified
sections (refer note on Sec.115BAC).

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