Set Off & Carry Forward of Losses

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When assessee incurs losses these losses can be set off against the income of some other source. However if there is no income from any other source then these losses can be carry forward to next year and can be set off in next year.  

SET OFF

INTRA HEAD ADJUSTMENT 
Set-Off Of Losses from One Source against Income From Another Source Under The Same Head Of Income 

General Rule: If the net result for any AY of any source falling under any head of income is a loss, the assessee is entitled to set off the amount of loss against his income from any other source under the same head.

EXCEPTIONS TO THE GENERAL RULE: 
  • Loss from Speculation Business: 
Income from speculation business is computed under the head income from business or profession. But if there is any loss from speculation business, it cannot be set-off against the income from other business or profession. It can be set-off only against the profit in a speculation business. However, the loss of non-speculation business can be set-off against the income from speculation business.

  • Loss from the activity of owning and maintaining race horses:
Loss from the activity of owning and maintaining race horses cannot be set off against any income except income from such business. However, loss from any activity other than the business of owning and maintaining race horses can be set off against income from the business of owning and maintaining race horses.

  • Long term capital Losses
STCL can be set off from any capital gain (long-term or short-term). But long-term capital loss can be set off only against long-term capital gain.
 
SET-OFF OF LOSS FROM ONE HEAD AGAINST INCOME FROM ANOTHER HEAD (INTER HEAD ADJUSTMENT)
  • Loss from any head can be adjusted against income of other head except in following situations. 
  • Loss under head PGBP cannot set off against income from salary. 
  • Loss under head capital gain cannot be set off against income from any other source. 
  • Loss from a source which is exempt: Loss incurred by an assessee from a source, income from which is exempt, cannot be set-off against income from a taxable source

CARRY FORWARD 
Rules regarding Carry forward of Losses

Carry forward and Set off of loss from “House property” Section 71B
It can be carry forward for 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

CARRY FORWARD AND SET OFF OF “BUSINESS LOSS” SECTION 72
It can be carry forward for 8 assessment years immediately succeeding the assessment year for which the loss was first computed by the same assesse even though the business might be discontinued. 

LOSSES OF “SPECULATIVE BUSINESS” SECTION 73
It can be carry forward for 4 assessment years immediately succeeding the assessment year for which the loss was first computed.

LOSSES OF “SPECIFIED BUSINESS” UNDER SECTION 35AD  SECTION 73A 
It can be carry forward for indefinite period.

LOSSES UNDER THE HEAD “CAPITAL GAINS” SECTION 74
It can be carry forward for 8 assessment years immediately succeeding the assessment year for which the loss was first computed.

These online MCQ Mock tests and MCQ questions includes all main concepts of the chapter (Set Off & Carry Forward of Losses) in CS Executive Module I Tax Laws & Practice (MCQ based OMR) Exam


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