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SET OFF & CARRY FORWARD OF LOSSES

Lecture Notes

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WHY SET OFF & CARRY FORWARD

IF THERE IS A LOSS FROM ONE OR MORE SOURCES UNDER ONE OR MORE HEADS OF INCOME

RULES ARE COVERED U/S 70 TO 79

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MODE OF SET OFF & CARRY FORWARD

STEP 1- INTER SOURCE ADJUSTMENT UNDER THE SAME HEAD OF INCOME (SEC 70)

STEP 2- INTER HEAD ADJUSTMENT IN THE SAME ASSESSMENT YEAR (SEC 71)

STEP 3- CARRY FORWARD OF A LOSS

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INTER SOURCE ADJUSTMENT (SEC 70)If there is a loss in respect of any source under any head of income for any Asst year then it can be set off under any other source under the same head

Business A 100000

Business B 70000

Business C (120000)

Net Result 50000

House Property X 75000House Property Y (40000)

Net Result 35000

EXAMPLES

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INTER SOURCE ADJUSTMENT (SEC 70)

EXCEPTIONS:- Loss from speculation business Long term capital loss Loss from activity of owning &

maintaining race horses Loss cannot be set off against winnings

from lotteries, crossword puzzles, card game etc.

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INTER HEAD ADJUSTMENT (SEC 71) When there is loss in respect of any head of

income for any assessment year then it can be set off against income from other heads

EXAMPLE

Salary Income 80000House Property (30000)

Net Result 50000

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INTER HEAD ADJUSTMENT (SEC 71)

EXCEPTIONS:- Loss in a speculation business Loss under the head capital gains Loss from activity of owning &maintaining race

horses Loss cannot be set off against winnings from

lotteries, crossword puzzles , card game etc. Business Loss cannot be adjusted against

Salary Income

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CARRY FORWARD OF LOSSUnder the act following losses can be carried forward:

Loss under head Income from ‘House Property’ (sec 71B)

Loss under head ‘P & G of B or P’ (sec 72 & sec 73)

Loss under the head ‘Capital Gains’ (sec 74)

Loss from activity of owning & maintaining race horses (sec 74A)

Other remaining losses cannot be carried forward.

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SPECULATION BUSINESS

Transaction in which a contract for the purchase or sale of any commodity, including stocks and shares, is periodically or ultimately settled, otherwise than by the actual delivery or transfer of the commodity or scrip's.

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ExceptionsExceptions :Contract in respect of -•Raw material or merchandise•Stocks and shares by a dealer or investor

•Member of forward market or a stock exchange in the course of jobbing or arbitrage

Guard against price fluctuation

Speculative business in case of a companySpeculative business in case of a company:

Any part of the business of a company consists in the purchase and sale of shares of other companies, such company shall be deemed to be carrying on a speculative business to the extent to which the business consists of purchase and sale of such shares.

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CARRY FORWARD & SET OFF OF SPECULATION LOSS

Speculation loss can be set off only against speculative income

Loss can be carried forward for 4 yrs.

Continuity of business not necessary.

Filing of Return of loss should be submitted in time

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CARRY FORWARD & SET OFF OF BUSINESS LOSS OTHER THAN

SPECULATION LOSS (SEC 72)

Loss carried forward, can be set off only against business income

Losses can be carried forward by the person who incurred the loss (exceptions to rule)

Loss can be carried forward for 8 yrs Return of loss should be submitted in time Continuity of business not necessary Carry forward of unabsorbed depreciation,

capital expenditure on scientific research & family planning expenditure

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CARRY FORWARD OF UNABSORBED DEPRECIATION

(Sec 32(2)) No time limit is fixed for the purpose of

carry forward. In the subsequent year(s) it can be set off

against any head. except winnings from lotteries, crossword puzzles & Salaries

Continuity of business not relevant. Following order of priority is followed.

(1) Current Depreciation(2) Brought Forward Business loss(3) Unabsorbed Depreciation

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CARRY FORWARD & SET OFF OF

LOSS & DEPRECIATION SEC (72A)

Depreciation and Business loss can be carried forward by a person who has incurred the loss

Exceptions- Amalgamation of Companies Demerger Conversion of a proprietary

concern/firm into company

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CARRY FORWARD & SET OFF OF LOSS FROM HOUSE PROPERTY (SEC 71B)

Applicable from Asst yr 1999-2000 Loss can be carried forward for 8 yrs Return of loss need not be submitted in

time

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CARRY FORWARD & SET OFF OF LOSS FROM ACTIVITY OF OWNING & MAINTAINING RACE HORSES (SEC 74A)

Continuity of Business necessary Loss can be carried forward for 4 yrs Return of loss should be submitted in

time Not applicable for other race animals Allowed only to the extent of stake falls

short of revenue expenditure

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CARRY FORWARD & SET OFF OF CAPITAL LOSS (Sec 74)

Nature of Loss

No. of

Years

Set off Against

A) Short term capital Loss

8 Any income under the head

“capital Gains”

B) Long term capital Loss

8 Long term capital Gain Return of loss should be submitted in time

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