SET OFF AND CARRY FORWARD OF LOSSES
The profit and losses are the two side of a coin. Losses, of course are hard to digest. However, the Income Tax Act in India does provide taxpayers with some benefits of incurring losses too. The law contains provisions for set-off and carry forward of losses which are discussed in detail in this article.
Set off of losses means adjusting the losses against the profit or income of that particular year. Losses that are not set off against income in the same year can be carried forward to the subsequent years for set off against income of those years. A set-off could be intra-head set-off or an inter head set off.
It means loss of one source of income can be set off against income from another source of income but in the same head of income.
Exceptions:
It means loss under one head of income can be set off against income from another head of income but in the same previous year.
NOTE:
For carry forward losses inter head adjustment not allowed.
Exceptions:
After making the appropriate and permissible intra head adjustments, there could still be unadjusted losses. These unadjusted losses can be carried forward to future years for adjustments against income of these years. The rule as regards carry forward differs slightly for different heads of income.
First rule to carry forward of loss is to file the return on income on or before the due date.
These have discussed here:
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CARRY FORWARD & SET-OFF OF LOSSES |
||||
|
Section |
Losses to be c/f |
B/F losses set off against |
Time Limit |
ROI on Time |
|
71B |
Loss from HP |
Income from HP |
8 Years |
No |
|
72 |
Normal business loss |
Any business Income |
8 Years |
Yes |
|
73 |
Speculative business loss |
Speculative business Income |
4 Years |
Yes |
|
73A |
Specified business loss |
Specified business Income |
Unlimited |
Yes |
|
74 |
Short Term Capital Loss |
Short Term Capital Gain & Long-Term Capital Gain |
8 Years |
Yes |
|
Long Term Capital Loss |
Long Term Capital Gain |
8 Years |
Yes |
|
|
74A |
Owning & maintaining racehorses |
Income from owning & maintaining racehorses |
4 Years |
Yes |
|
32 |
Unabsorbed Depreciation |
Any head of income except salary |
Unlimited |
No |
Steps for Carry forward.
|
LOSS HEAD |
Set off / Carry forward Steps |
|
1. Loss from Salary |
Loss not possible |
|
2. Loss from House property |
Step 1: Intra head adjustment. Step 2: Inter head adjustment (Max Rs. 2,00,000) Step 3: Carry Forward for next 8 Assessment Years. |
|
3. Loss from Speculative Business |
Step 1: Set off against speculative business income. Step 2: Carry Forward for next 4 Assessment Years. |
|
4. Loss from Specified Business |
Step 1: Set off against specified business income. Step 2: Carry Forward for unlimited years. |
|
5. Any other business loss |
Step 1: Intra head adjustment. Step 2: Inter head adjustment (except salary). Step 3: Carry Forward for next 8 Assessment years. |
|
6. Short Term Capital Loss |
Step 1: Set off against short term capital gain or long-term capital gain. Step 2: Carry forward for next 8 Assessment years. |
|
7. Long term Capital Loss |
Step 1: Set off against long term capital gain. Step 2: Carry forward for next 8 Assessment years. |
|
8. Loss from Owning & Maintaining racehorses |
Step 1: Set off against Owning & maintaining race-horses income. Step 2: Carry forward for next 4 Assessment years. |
|
9. Other losses from Income from other sources |
Step 1: Intra head adjustment. Step 2: Inter head adjustment. Step 3: Carry forward not allowed. |
NOTES:
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