Set Off And Carry Forward Of Losses 1218288118076384 8
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- Words: 1,140
- Pages: 26
- JUI TAMHANE
Government derives revenues by levying taxes. Taxes can be Indirect or Direct. Indirect taxes are in the form of custom duties , excise duties, value added tax etc. Income tax is a form of direct tax which is based on the income of the person. All the laws relating to Income tax are contained in the INCOME TAX ACT 1961
There might be cases when we have loss under one of the heads of income during the same year & we also have profit under the same or some other head of income, we can reduce the profit by the amount of loss. For eg. If we have a loss of Rs.1lakh from the head “income from property “ & we set it off against “income from salary” the income gets reduced by 1lakh. If we are in the 30% tax bracket we would end up saving Rs. 30,000.
If income is less than the loss we cannot set off the full loss. In such cases we can carry forward the loss to the next year so that we can set it off against income in the subsequent years.
The following losses can be carried forward: Loss under the head “Income from House Property”. Loss under the head “Profits and Gains from Business or Profession”. Loss under the head “Capital Gains”. Loss from the activity of owning and maintaining race horses.
Sections
Particulars
70
Set off of loss from one source against income from another source under the same head of income.
71
Set off from one head against income from another.
71B
Carry forward & set off of loss from House property.
72
Carry forward & set off of Business losses.
72A
Amalgamation , conversion of firm or proprietary concern to company.
73
Losses in speculation business
74
Losses under the head Capital gains.
74A
Carry forward & set off of loss from owning & maintaining race horses.
1.
2.
3.
Inter – source adjustment under the head of income (intra head adjustment) Inter – head adjustment in the same assessment year. Carry forward of loss.
If the net result for any assessment year, in respect of any source under any head of income, is a loss, the assessee is entitled to have the amount of such loss set off against his income from any other source under head of income for the same assessment year.
X has two businesses – A & B. Profit From Business A
Rs. 5,00,000
Loss From Business B
Rs. 2,00,000.
The Loss of Rs. 2,00,000 can be set off with his Profit of Rs. 5,00,000. Therefore the amount taxable under the head Profit & Gains from Business will be (500000 – 200000) Rs. 3,00,000.
Where the net result of computation made for any assessment year in respect of any head of income is a loss, the same can be set off against the income from other heads.
X has two non speculative businesses A & B.
Besides he has income from house property.
Profit From Business A
Rs. 70000
Loss From Business B
Rs. 290000.
Income from House property
Rs. 510000
The Net Loss from both businesses of Rs. 220000(29000070000) can be set off with House Property income of Rs. 510000. Therefore the net income taxable is Rs. 290000.
Speculation Loss – Cannot be set off against any other head. Capital Loss - Cannot be set off against any other head except ‘Capital Gains’. Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head. Business loss cannot be set off with Salary. Loss cannot be set off against winnings from lotteries, crossword puzzles etc. Loss from purchase of securities.
A loss under house property if could not be set off in the same assessment year from other heads of income , will be allowed to carry forward & set off in the subsequent years under this head.
Loss can be carried forward for eight assessment years.
Income from House I – 60000 Loss from House II – (30000) NET INCOME 30000
He has brought forward losses H1 (98-99) 30000, H2 (2001-02) 35000 98-99 H1 loss will be ignored. Loss of 01-02 will be adjusted with 30000. Therefore 5000 will be carried forward.
Loss can be set off only against business income. Losses can be carried forward by the person who incurred the loss. Loss can be carried forward for 8 years. Return of loss should be submitted in time. Continuity of business not necessary. Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses.
Can be set off or carried forward against any head of income except salary. Loss can be set off or carried forward for 8 years or indefinite period.
Speculative loss can be set off only against speculative income. Can be carried forward for 4 years. Continuity of Business is not necessary. Return of Loss should be submitted in time.
Long term capital loss can be set off only against long term capital gains.
Short term can be set off against short term or long term capital gains.
Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed.
Such loss can be carried forward unless return is filed within the time limit of the section.
Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses.
Loss can be carried forward for 4 assessment years immediately succeeding the assessment year in which the loss was first computed.
Such loss cannot be carried forward unless return is filed within the time limit of section 139(1).
Type of Loss to be carried forward to the next year(s)
Income against which carried Years forward loss can be set off in next year(s)
HOUSE PROPERTY LOSS
INCOME FROM HOUSE PROPERTY
8 YEARS.
SPECULATION LOSS
SPECULATION PROFITS
4 YEARS.
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
NON SPECULATION BUSINESS LOSS:
LOSS FROM ACTIVITY OF OWNING INCOME FROM SUCH ACTIVITY & MAINTAINING RACE HORSES
4 YEARS
(Section 73) Speculation losses: Units of UTI cannot be treated as shares. Apollo tyres v/s CIT [2002]
(Section 74A) Losses from horse races Participation in races is not a requirement. CIT v/s R.M.S & sons[2001]
Government derives revenues by levying taxes. Taxes can be Indirect or Direct. Indirect taxes are in the form of custom duties , excise duties, value added tax etc. Income tax is a form of direct tax which is based on the income of the person. All the laws relating to Income tax are contained in the INCOME TAX ACT 1961
There might be cases when we have loss under one of the heads of income during the same year & we also have profit under the same or some other head of income, we can reduce the profit by the amount of loss. For eg. If we have a loss of Rs.1lakh from the head “income from property “ & we set it off against “income from salary” the income gets reduced by 1lakh. If we are in the 30% tax bracket we would end up saving Rs. 30,000.
If income is less than the loss we cannot set off the full loss. In such cases we can carry forward the loss to the next year so that we can set it off against income in the subsequent years.
The following losses can be carried forward: Loss under the head “Income from House Property”. Loss under the head “Profits and Gains from Business or Profession”. Loss under the head “Capital Gains”. Loss from the activity of owning and maintaining race horses.
Sections
Particulars
70
Set off of loss from one source against income from another source under the same head of income.
71
Set off from one head against income from another.
71B
Carry forward & set off of loss from House property.
72
Carry forward & set off of Business losses.
72A
Amalgamation , conversion of firm or proprietary concern to company.
73
Losses in speculation business
74
Losses under the head Capital gains.
74A
Carry forward & set off of loss from owning & maintaining race horses.
1.
2.
3.
Inter – source adjustment under the head of income (intra head adjustment) Inter – head adjustment in the same assessment year. Carry forward of loss.
If the net result for any assessment year, in respect of any source under any head of income, is a loss, the assessee is entitled to have the amount of such loss set off against his income from any other source under head of income for the same assessment year.
X has two businesses – A & B. Profit From Business A
Rs. 5,00,000
Loss From Business B
Rs. 2,00,000.
The Loss of Rs. 2,00,000 can be set off with his Profit of Rs. 5,00,000. Therefore the amount taxable under the head Profit & Gains from Business will be (500000 – 200000) Rs. 3,00,000.
Where the net result of computation made for any assessment year in respect of any head of income is a loss, the same can be set off against the income from other heads.
X has two non speculative businesses A & B.
Besides he has income from house property.
Profit From Business A
Rs. 70000
Loss From Business B
Rs. 290000.
Income from House property
Rs. 510000
The Net Loss from both businesses of Rs. 220000(29000070000) can be set off with House Property income of Rs. 510000. Therefore the net income taxable is Rs. 290000.
Speculation Loss – Cannot be set off against any other head. Capital Loss - Cannot be set off against any other head except ‘Capital Gains’. Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head. Business loss cannot be set off with Salary. Loss cannot be set off against winnings from lotteries, crossword puzzles etc. Loss from purchase of securities.
A loss under house property if could not be set off in the same assessment year from other heads of income , will be allowed to carry forward & set off in the subsequent years under this head.
Loss can be carried forward for eight assessment years.
Income from House I – 60000 Loss from House II – (30000) NET INCOME 30000
He has brought forward losses H1 (98-99) 30000, H2 (2001-02) 35000 98-99 H1 loss will be ignored. Loss of 01-02 will be adjusted with 30000. Therefore 5000 will be carried forward.
Loss can be set off only against business income. Losses can be carried forward by the person who incurred the loss. Loss can be carried forward for 8 years. Return of loss should be submitted in time. Continuity of business not necessary. Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses.
Can be set off or carried forward against any head of income except salary. Loss can be set off or carried forward for 8 years or indefinite period.
Speculative loss can be set off only against speculative income. Can be carried forward for 4 years. Continuity of Business is not necessary. Return of Loss should be submitted in time.
Long term capital loss can be set off only against long term capital gains.
Short term can be set off against short term or long term capital gains.
Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed.
Such loss can be carried forward unless return is filed within the time limit of the section.
Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses.
Loss can be carried forward for 4 assessment years immediately succeeding the assessment year in which the loss was first computed.
Such loss cannot be carried forward unless return is filed within the time limit of section 139(1).
Type of Loss to be carried forward to the next year(s)
Income against which carried Years forward loss can be set off in next year(s)
HOUSE PROPERTY LOSS
INCOME FROM HOUSE PROPERTY
8 YEARS.
SPECULATION LOSS
SPECULATION PROFITS
4 YEARS.
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
NON SPECULATION BUSINESS LOSS:
LOSS FROM ACTIVITY OF OWNING INCOME FROM SUCH ACTIVITY & MAINTAINING RACE HORSES
4 YEARS
(Section 73) Speculation losses: Units of UTI cannot be treated as shares. Apollo tyres v/s CIT [2002]
(Section 74A) Losses from horse races Participation in races is not a requirement. CIT v/s R.M.S & sons[2001]
