www.safeecollege.com set off and carry forward of losses

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SET OFF AND CARRY SET OFF AND CARRY FORWARD OF LOSSESFORWARD OF LOSSES


Mode of Carry Forward & Set Mode of Carry Forward & Set offoff

1.1. Inter – source adjustment under Inter – source adjustment under the head of income (intra head the head of income (intra head adjustment)adjustment)

2.2. Inter – head adjustment in the Inter – head adjustment in the same assessment year.same assessment year.

3.3. Carry forward of loss.Carry forward of loss.


Inter Source Adjustment Inter Source Adjustment (Sec 70 )(Sec 70 )

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


ExampleExample

The Loss of Rs. 200000 can be set off with his Profit of Rs. 500000. Therefore the amount taxable under the head Profit & Gains from Business will be (500000 – 200000) Rs. 300000.

X has two businesses – X has two businesses – A & B.A & B.

Profit From Business AProfit From Business A Rs. 500000Rs. 500000

Loss From Business BLoss From Business B Rs. 200000.Rs. 200000.


RulesRules


Inter Head Adjustment (Sec Inter Head Adjustment (Sec 71)71)

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


ExampleExample

The Net Loss from both businesses of Rs. 220000(290000-70000) can be set off with House Property income of Rs. 510000. Therefore the net income taxable is Rs. 290000.

X has two non X has two non speculative businesses speculative businesses A & B.A & B.

Besides he has income Besides he has income from house property.from house property.

Profit From Business AProfit From Business A Rs. 70000Rs. 70000

Loss From Business BLoss From Business B Rs. 290000.Rs. 290000.

Income from House Income from House propertyproperty

Rs. 510000Rs. 510000


RulesRules


ExceptionsExceptions

Speculation Loss – Cannot be set off against Speculation Loss – Cannot be set off against any other head.any other head.

Capital Loss - Cannot be set off against any Capital Loss - Cannot be set off against any other head except ‘Capital Gains’.other head except ‘Capital Gains’.

Loss from the activity of owning and Loss from the activity of owning and maintaining race horses - Cannot be set off maintaining race horses - Cannot be set off against any other head.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 Loss cannot be set off against winnings from

lotteries, crossword puzzles etc. lotteries, crossword puzzles etc. Loss from purchase of securities.Loss from purchase of securities.


Carry Forward of Carry Forward of LossesLosses

The following losses can be carried The following losses can be carried forward: - forward: -

Loss under the head “Income from Loss under the head “Income from House Property”.House Property”.

Loss under the head “Profits and Gains Loss under the head “Profits and Gains from Business or Profession”.from Business or Profession”.

Loss under the head “Capital Gains”.Loss under the head “Capital Gains”. Loss from the activity of owning and Loss from the activity of owning and

maintaining race horses.maintaining race horses.


Carry forward of Bussiness Carry forward of Bussiness loss other than Speculative loss other than Speculative lossloss Loss can be set off only against business Loss can be set off only against business

income.income. Losses can be carried forward by the Losses can be carried forward by the

person who incurred the loss.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, Carry forward of unabsorbed depreciation,

capital expenditure on scientific research capital expenditure on scientific research and family planning expenses.and family planning expenses.


Speculation BussinessSpeculation Bussiness


Carry Forward of speculative Carry Forward of speculative LossesLosses

Speculative loss can be set off Speculative loss can be set off only against speculative income.only against speculative income.

Can be carried forward for 4 years.Can be carried forward for 4 years. Continuity of Business is not Continuity of Business is not

necessary.necessary. Return of Loss should be Return of Loss should be

submitted in time.submitted in time.


Carry Forward of Capital Carry Forward of Capital LossesLosses

Long term capital loss can be set off only against Long term capital loss can be set off only against long term capital gains.long term capital gains.

Short term can be set off against short term or Short term can be set off against short term or long term capital gains.long term capital gains.

Such loss can be carried forward for 8 Such loss can be carried forward for 8 assessment years immediately succeeding the assessment years immediately succeeding the assessment year in which the loss was first assessment year in which the loss was first computed.computed.

Such loss can be carried forward unless return is Such loss can be carried forward unless return is filed within the time limit of the section.filed within the time limit of the section.


Carry forward and set off of loss Carry forward and set off of loss from the activity of Owing & from the activity of Owing & Maintianence of Race HorsesMaintianence of Race Horses Loss from such activities can be carried forward Loss from such activities can be carried forward

to a subsequent year and set off only against to a subsequent year and set off only against income from the business of owning and income from the business of owning and maintaining race horses.maintaining race horses.

Loss can be carried forward for four assessment Loss can be carried forward for four assessment years immediately succeeding the assessment years immediately succeeding the assessment year in which the loss was first computed.year in which the loss was first computed.

Such loss cannot be carried forward unless return Such loss cannot be carried forward unless return is filed within the time limit of section 139(1).is filed within the time limit of section 139(1).


Carry forward and loss of Carry forward and loss of

House PropertyHouse Property

Loss can be carried forward for Loss can be carried forward for eight assessment years. eight assessment years.


ExampleExample

Income from House I – 60000Income from House I – 60000 Loss from House II – (30000)Loss from House II – (30000) NET INCOME 30000NET INCOME 30000

He has brought forward losses H1 (98-He has brought forward losses H1 (98-99) 30000, H2 (2001-02) 3500099) 30000, H2 (2001-02) 35000

98-99 H1 loss will be ignored.98-99 H1 loss will be ignored. Loss of 01-02 will be adjusted with Loss of 01-02 will be adjusted with

30000.30000. Therefore 5000 will be carried forward.Therefore 5000 will be carried forward.


Provisions in BriefProvisions in BriefType of Loss to be Type of Loss to be carried forward to the carried forward to the next year(s)next year(s)

Income against which Income against which carried forward loss can carried forward loss can be set off in next year(s)be set off in next year(s)

YearsYears

HOUSE PROPERTY LOSS INCOME FROM HOUSE PROPERTY 8 YEARS.

SPECULATION LOSS SPECULATION PROFITS 4 YEARS.

NON SPECULATION BUSINESS LOSS:

Unabsorbed Depreciation, Scientific Research & Family Planning Expenditure

ANY INCOME NO TIME LIMIT

Other Business Losses SPECULATIVE AND NON SPECULATIVE

8 YEARS

SHORT TERM CAPITAL LOSS SHORT AND LONG TERM GAINS 8 YEARS

LONG TERM CAPITAL LOSS LONG TERM CAPITAL GAINS 8 YEARS

LOSS FROM ACTIVITY OF OWNING & MAINTAINING RACE HORSES

INCOME FROM SUCH ACTIVITY 4 YEARS

www.safeecollege.com set off and carry forward of losses

Documents

business loss

net loss

return of loss

bussiness loss

comexceptionssp loss

head income

comexamplethe loss of

head capital gains