Carry forward & set-off of business losses
Set off – It means adjustment of losses against the profit from source/heads of income in the same assessment year.
Carry forward- If the losses cannot be set off in the same year due to inadequacy of eligible profit, then such losses will be carried forward to the next assessment year.
Losses can be set off in the following three steps
– Inter source Adjustment
– Inter head Adjustment
– Carried forward of losses
Step 1 Inter source Adjustment Sec 70
It means losses from one source can be adjusted against another source of income but “In the same Head”.
There is certain Exception:-
– Speculation losses can be adjusted only against speculation losses. However, losses from any other business can be adjusted against profits from speculation business.
– Long term capital gain losses can be set off only against long term Capital gain. However, Short term capital losses can be set off against both Short term & long term capital gain.
– Losses from the activity of owning & maintaining race horses can be adjusted against same income
Notes:-
It must be noted that loss from any other source cannot be set off against taxable source of Income.
Step 2 Inter House Adjustment Section 71
It means losses from one head can be set off against income of other heads but in the “Same Year”.
There is certain exception:
– Speculation losses cannot be adjusted against income under any other heads.
– Losses from the activity of owning & maintaining race horses cannot be adjusted against income under any other heads.
– Normal Business can be set off against any other head except Income from Salary
– Where the net result of computation under the head “Capital gain” is a loss. Such capital loss cannot be set off against income under any other head.
Notes
Income from Salary: – Loss not possible.
Income from House property: – Losses can be adjusted in all three ways.
Income from business & profession
1 . Normal Business losses: – Adjusted (Except from Salary)
2. Speculation Business losses: – Only against same income & same head
Capital Gain
1. Short Term Capital Loss:- Adjusted against Short term capital gain & long term capital gain.
2. Long Term Capital Loss:- Adjusted only against Long term Capital Gain.
Income from other sources
1. Loss from owning & maintaining Horses:- Only against same income
2. Other losses: – Loss can be adjusted against any head but in same year, it cannot be carried forward.
Step 3 Carried forward of losses
If the losses cannot be set off fully against income in the same year then such losses can be carried forward and set off against own head .
Section | Loss to be CF | Set off against | No of years | Filling Return of income |
71 B | Loss from House property | Same head | 8 | Not compulsory |
72 | Normal business loss | Same head | 8 | Compulsory |
73 | Speculation business loss | Same Income | 4 | Compulsory |
74 | Long Term Capital Loss | Same Income | 8 | compulsory |
Short Term Capital Loss | Same Head | 8 | Compulsory | |
74(3) | Loss from owning & Maintaining Horses | Same Income | 4 | Compulsory |
Unabsorbed Deprecation Section 32 (2)
As per section 32 (2) Unabsorbed deprecation can be carried forward for infinite no of years and this losses can be set off against any income except “Income from Salary”
Note – Normal and speculation business losses can be carried forward whether the business is continued /discontinued.
– Loss from Owning & maintaining race horses can be carried forward only if business is continue.
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