Setoff & Carry forward of

Losses:
By
B.Pani M.Com,LLB,FCA,FICWA,ACS,DISA,MBA
[email protected] 9731397829
• Loss from Speculation business- only
against profit from that business
• >Long term Capital Loss: Only against
long term capital gain
• >Owning & maintaining Race horses:
against same business
• >Loss cannot be setoff against winning
from lotteries, crosswords puzzles, races
including horse races, card games and
other games of any sort or from gambling
or betting of nay other form or nature
 Setoff of loss from one head
against income of another head:
Inter head
• Loss under one head can be setoff against
income under another head. Exceptions
are:
• Loss from Speculation business
• Loss from CG
• Loss from owning & maintaining Race
horses
 Carry forward of Losses
• Loss from HP
• Loss from B/P
• Loss from CG
• Loss from OS- Loss from owning &
maintaining Race horses
 Carry forward and Setoff of loss
• B/P : Other than speculative business
• CG : LTCL against LTCG
• CG : STCL against STCG & LTCG
• HP : Against HP income only
• OS : Loss from owning & maintaining
Race horses
 Inter Source Set Off of Losses
Section 70
• Where 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
same can be set off against income from any other source under the same
head.

• Where the computation for any assessment year in respect of short term
capital asset is a loss, the same can be set off only against income, if any,
arrived at under a similar computation in respect of any other capital asset
i.e. short term capital gain / long term capital gain
– STCL – Set off against STCG/LTCG

• Where the computation for any assessment year in respect of any capital
asset ( other than a short term capital asset) i.e. a long term capital loss, the
same can be set off only against income, if any, arrived at under a similar
computation in respect of any other capital asset, not being a short term
capital asset.
– LTCL – Set off against LTCG
 Exceptions to Inter Source Set
Off
• Activity of owning or maintaining of race
horses
• Speculation business
• Short term capital loss – set off against
Short Term Capital Gain / Long Term
Capital Gain
• Long term capital loss – set off only
against Long term Capital Gain
 Set off of loss - Section 71
• Loss under any head of income, other than “Capital
Gains” and no income under the head “Capital Gains”,
such loss can be set off against income, if any,
assessable for that assessment year under any other
head.
• Loss under any head of income, other than “Capital
Gains” can be set off against income, if any,
assessable for that assessment year under any head
of income including the head “Capital Gains”.
• Loss under the head “ Capital Gains” cannot be set off
against income under any other head of income.
 Carry forward and set off of loss
from
•
house property Section 71B
Where the loss under the head “ Income from house property” cannot / is
not wholly set off against income from any other head of income, the same
shall be carried forward and set off for 8 assessment years immediately
succeeding the assessment year for which the loss was computed.
• The above shall be first set off against income from the above head
assessable for that assessment year.
 Carry Forward and Set Off of
business losses Under Section 72
• Where the Loss under the head “ Profits & Gains of
Business or Profession” cannot / is not wholly set off
against income from any other head of income, the
same shall be carried forward and set off for 8
assessment years immediately succeeding the
assessment year for which the loss was computed.
• The above shall be first set off against income from
the above head assessable for that assessment year.
• Loss can be carried forward if the return is filed u/s
139 (1) and it is determined and communicated u/s
157.
 Carry Forward / Set Off of Loss &
Unabsorbed depreciation in amalgamation
or demerger

• The amalgamation shall be of a company

owning an Industrial undertaking or Ship or
Hotel with another company or amalgamation
of banking company with specified bank.
• Loss set off in the hands of Amalgamated
Company.
• Can be carried forward for a period of 8 years
from the year in which amalgamation takes
place.
 Conditions to be fulfilled by the
Amalgamated Company Under Section 72
A (2)
• Amalgamated company holds 3/4th of the book value of fixed
assets of amalgamating company continuously for a minimum
period of 5 years from the date of amalgamation.
• Business of the amalgamating company shall be continued for
a period of 5 years from the date of amalgamation.
• To ensure revival of the business and to prove that the
amalgamation is for genuine business purpose (Conditions
under Rule 9C to be satisfied)
– Achievement of at least 50% of installed capacity on date of
amalgamation
– Furnishing Chartered Accountants’ Certificate in Form 62.
 Conditions to be fulfilled by the
Amalgamating Company Under Section 72
A (2)
• The amalgamating company is engaged in the
business at least for three years.
• The accumulated loss has occurred or the
depreciation remains unabsorbed for three or
more years.
• As on the date of amalgamation, it has held
continuously at least three fourths of the value
of the fixed assets held by it two years prior to
the date of amalgamation.
 Loss of Demerged Company
• Set off of loss in the hands of either
– Resulting Company only (or)
– Resulting Company and demerged Company

• If the business is directly relatable to resulting company - Set

off in the hands of resulting company.

• If business is not directly relatable to resulting company -

Apportioned between demerged company and resulting
company in the ratio

• [ Loss of Demerged Company prior to demerger x Assets

transferred to resulting company] / Total Assets of demerged
Company prior to demerger].
 Carry Forward of Loss in case of
succession of business Under Section 72 A
(6)
• Accumulated Loss and Unabsorbed depreciation of
Predecessor firm or Proprietary concern - shall be
deemed to be the loss or allowance for depreciation of
the successor company and set off of such loss /
allowance will be available for a period of 8 years
commencing form the previous year of such business
reorganization.

• Proviso to the above section – Conditions laid down

under proviso to clause (xiii) / (xiv) to section 47 to be
complied with.
 Losses in Speculation Business
Under Section 73
• Loss in respect of speculation business shall be set off only
against income under speculation business.
• Brought forward unabsorbed speculation business loss shall be
set off only against income under Speculation Business
• The above shall be first set off against income from the above
head assessable for that assessment year
• Carry forward and set off is permissible for 4 assessment years
immediately succeeding the assessment year for which the loss
was computed.
• Loss can be carried forward if the return is filed u/s 139 (1) and
it is determined and communicated u/s 157
 Losses under the head Capital Gains
Under Section 74
• Short term Capital Loss shall be set off against income, if any,
under the head Capital Gains in respect of income under any
other capital asset.
• Long tern capital loss shall be set off against income, if any,
under the head Capital Gains in respect of any other capital
asset not being short term capital asset.
– LTCL – Set off only against LTCG
• The above shall be first set off against income from the above
head assessable for that assessment year
• Carry forward and set off is permissible for 8 assessment years
immediately succeeding the assessment year for which the loss
was computed.
• Loss can be carried forward if the return is filed u/s 139 (1) and
it is determined and communicated u/s 157
 Losses under the head Income from
other sources Under Section 74 A
• Loss in respect of activity of owning and maintaining race horse
shall be set off only against income under activity of owning and
maintaining race horse .
• The above brought forward unabsorbed loss shall be set off
only against income under the same head.
• The above shall be first set off against income from the above
head assessable for that assessment year
• Carry forward and set off is permissible for 4 assessment years
immediately succeeding the assessment year for which the loss
was computed.
• Loss can be carried forward if the return is filed u/s 139 (1) and
it is determined and communicated u/s 157
 Loss of closely held company
Under Section 79
• Loss shall be carried forward to subsequent years
provided
• Not less than 51% of the voting power were beneficially
held by the same persons both on the last day of the
previous year in which the loss is incurred and on the
last day of the year in which such loss is ought to be set
off.
• Exception to the above
– Death of shareholder or gift by shareholder to
relative
– Change in shareholding of Indian Company, which is
subsidiary of foreign company.
 Order of Priority in Carry
Forward and Set Off of Losses
• Current scientific research capital expenditure u/s
35(1)
• Current depreciation u/s 32(1)
• Unabsorbed business losses of previous years u/s
72(1)
• Unabsorbed family planning promotion expenditure of
previous year u/s 36(1)(ix)
• Unabsorbed depreciation of previous years u/s 32(2)
• Unabsorbed scientific research capital expenditure of
previous years u/s 35(4).
 Submission of return of losses
Under Section 80
• Loss under the following heads can be carried
forward only if return is filed u/s 139 (10 and it is
determined and communicated u/s157
• Speculation Loss
• Brought forward unabsorbed speculation business
loss
• Brought forward unabsorbed loss under the head
capital gains
• Brought forward unabsorbed loss from activity of
owning and maintaining race horses.