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PROF. VINIT KUMAR TAXATION 9873126173

11. SET OFF AND CARRY FORWARD OF LOSSES

Section 70 INTRA HEAD ADJUSTMENT

GENERAL RULE :- within the particular head of income, loss from one source can be set off against the income
from any other source.
EXCEPTIONS :- A) losses of speculative business only against income from speculative business.
B) losses of business u/s 35 AD only against income from business u/s 35 AD.
C) losses of OMRH only against income from OMRH
D) LTCL cannot be set off against STCG.

Section 71 INTER HEAD ADJUSTMENT

GENERAL RULE :- there is a loss under any head of income it can be set off against income under any other head
EXCEPTIONS :- A) losses of speculative business only against income from speculative business.
B) losses of business u/s 35 AD only against income from business u/s 35 AD.
C) losses of OMRH only against income from OMRH
D) PGBP losses cannot be set off against salary income.
E) CAPITAL LOSSES cannot be set off against any other head

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT

PROF. VINIT KUMAR TAXATION 9873126173

SET OFFS & CARRY FORWARDS

INCOME HEAD INTRA HEAD INTER HEAD CARRY FORWARD

HOUSE Allowed Allowed except casual 8 years ( only against
PROPERTY income ( max. Rs.2 lacs) house property)

NORMAL Allowed to any other business of Allowed except casual 8 years ( only against
BUSINESS assessee. income and salary. income u/h PGBP)

SPECULATIVE Allowed only against speculative Not allowed 4 years ( only against
BUSINESS business. speculative business.)

BUSINESS U/S Allowed only against business u/s 35 Not allowed Unlimited time ( only
35 AD AD against 35 AD.)

CAPITAL GAIN STCL STCG Not allowed STCL STCG

LTCL LTCG LTCL LTCG

( 8 years)

CASUAL LOSS Not allowed Not allowed Not allowed

LOSS FROM Allowed only against OMRH Not allowed 4 years. (Allowed only
OMRH against OMRH

OTHER Allowed except casual income Allowed Not allowed

LOSSES

Q1:-Compute gross total income of Mr. Jacky from following data -

Source of income Amount
Income under the head ‘Salaries’ 2,60,000
Income from house property (A) 60,000
Income from house property (B) (2,80,000)
Speculation income 20,000
Business income (1,30,000)
Income from activity of owning and maintaining race-horses (1,50,000)
Income from agricultural business (1,25,000)
Short term capital gain 30,000
Long term capital gain (1,00,000)
Income from lottery 10,000
Income from horse races 1,70,000
Interest on securities after adjusting interest expenses and other expenses (70,000)

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PROF. VINIT KUMAR TAXATION 9873126173
Q2:- Mr. Bhola has furnished you the following data –
Income from house property (₹ 1,30,000)
Salaries (Net) ₹ 80,000
Income from other sources (₹ 90,000)
Income from lotteries ₹ 3,50,000
Mr. Bhola is seeking your advice relating to set off and carry-forward.

Q3:-
Compute Gross total income of Mrs. Shikha from following details for the A.Y.2023-24 ₹
Income from house property A 60,000
Income from house property B (1,50,000)
Income from house property C 1,00,000
Income from other sources 1,00,000
Losses u/s 22 for the A.Y. 2022-23 (30,000)
Losses u/s 22 for the A.Y. 1998-99 (15,000)
Losses u/s 56 for the A.Y. 2022-23 (45,000)

Q4: Mr. X has loss under the head House Property 5,00,000 and income under the head Salary Rs.3,00,000 and
income under the head Business/Profession, Rs.10,00,000 and LTCG Rs.6,00,000 and casual income Rs.2,00,000 and
unadjusted loss of Business/Profession Rs.4,00,000 of Assessment Year 2018-19 and loss of Business/Profession
3,00,000 of Assessment Year 2019-20.
Compute his taxable income.

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PROF. VINIT KUMAR TAXATION 9873126173
Q5: Mrs. X has income and losses as given below:
1. Income under the head Salary 5,00,000
2. Loss under the head House Property 10,00,000
3. Income under the head Business/Profession 12,00,000
4. Income from STCG 2,00,000
5, Income from STCG u/s 111A 10,00,000
6. Casual Income 3,00,000
Deduction under section 80C to 80U 1,00,000
Brought forward business/Profession loss for
- Previous year 2011-12 3,00,000
- Previous year 2014-15. 6,00,000
-Previous Year 2019-20 3,00,000
Compute income of Mrs. X .

Carry Forward and Set Off of Losses in case of change in Constitution of firm.

If any partner is retired or is expired from the beginning of a particular previous year, in such cases his share in
the losses, of the partnership firm shall not be allowed to be carried forward and set off by the partnership firm
but if partner is retired /expired during A particular year in that as his share in the losses of the firm. shall be
allowed to carried forward and set off but only to the extent of his share in the profits of the partnership firm.
Section 78 covers losses i.e, losses under all the heads but nothing is mentioned regarding depreciation hence
carried forward and set off of depreciation is allowed to the partnership firm even if any partner is retired /
expired.
Q6:- P, Q and R are partners in a firm sharing profits and losses in the ratio of 1:1:2, provide the following
information. Find firm’s net income assuming that salary and interest are not paid to partners:
(i) Net income of the firm in assessment year 2022-23 is (-) ` 1,20,000, out of which unadjusted depreciation is `
40,000.
(ii) On 31.05.2022, R retires from the firm and the other partners carry on the same business.
(iii) The firm’s income for the Assessment Year 2023-24 before adjusting the aforesaid loss and depreciation is `
1,20,000.

Answer: Where a change occurs in the constitution of firm, on account of retirement or death of a partner, the
proportionate loss of the retired or deceased partner shall not be carried forward. However, this section shall not
apply in case of unabsorbed depreciation. Accordingly,

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT

PROF. VINIT KUMAR TAXATION 9873126173
Computation of total income for A.Y. 2023-24
Particulars Details Amount Amount
Income before adjusting brought forward loss and depreciation 1,20,000
Less: Brought forward loss (excluding unabsorbed depreciation) 80,000
Less: Loss which cannot be set off (Working) 30,000 50,000
Less: Unabsorbed depreciation 40,000 90,000
Total Income 30,000
Working: Computation of share of R in brought forward loss and loss which cannot be set off

Particulars Amount
Total unabsorbed brought forward loss 1,20,000
Less: Unabsorbed depreciation 40,000
Brought forward loss excluding depreciation 80,000
Share of R in aforesaid loss [(₹ 80,000 / 4) * 2] 40,000
Less: Share of R in current profit before adjusting brought forward loss & depreciation [(₹ 10,000
1,20,000/ 12 * 2) * 2 / 4]
Loss which cannot be set-off 30,000

Set Off and Carry Forward of Losses in case of Amalgamation.

In case of amalgamation, unadjusted losses under the head business/profession and depreciation of the
amalgamating company shall be allowed-to be set off and carried forward by the amalgamated company as if
incurred by the amalgamated company in the year of amalgamation. e.g. ABC Ltd. an industrial undertaking has
incurred losses as given below:
(i) Previous Year 2015-16 Rs.20,00,000
(ii) Previous Year 2016-17 Rs.25,00,000
(iii) Previous Year 2017-18 Rs.22,00,000
(iv) Previous Year 2018-19 Rs.24,00,000
(v) Previous Year 2019-20 Rs.21,00,000
(vi) Previous Year 2020-21 Rs.23,00,000
(vii) Previous Year 2021-22 Rs.26,00,000
If amalgamation has taken place on 01.11.2022 with Z Ltd. and ABC Ltd. has incurred business losses till 01.11.2022
Rs.18,00,000, all the losses amounting to Rs.1,79,00,000 shall be considered to be the business losses of Z Ltd.
incurred in the' previous year 2022-23 and set off and carry forward shall be allowed accordingly.

Q7:- MNP Ltd. commenced operations of the business of a new four-star hotel in Chennai on 1-4-2019. The
company incurred capital expenditure of ` 40 lakh during the period January, 2019 to March, 2019 exclusively for
the above business, and capitalized the same in its books of account as on 1st April, 2019. Further, during the
Previous Year 19-20, it incurred capital expenditure of ` 2.5 crore (out of which ` 1 crore was for acquisition of
land) exclusively for the above business. Compute the income under the heading “profits and gains of business or
profession” for the year 2019-20, assuming that MNP Ltd. has fulfilled all the conditions specified for claim of
deduction u/s 35AD and has not claimed any deduction under Chapter VI-A under the heading “C.-Deductions in
respect of certain incomes”. The profits from the business of running this hotel (before claiming deduction u/s
35AD) for the A.Y. 2019-20 is ` 80 lakhs. Assume that the company also has another existing business of running a

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PROF. VINIT KUMAR TAXATION 9873126173
four-star hotel in Kanpur, which commenced operations 5 years back, the profits from which was ` 130 lakhs for
previous year 2019-20

Set Off and Carry Forward in case of Demerger Section 72A

If any particular unit or division of an existing company has been separated to make a new company, it is called
demerger and the company which has come into existence shall be called resulting company and original company
shall be called demerged company and process shall be called demerger.

Losses under the head business/profession and depreciation relating to division or unit which has been separated
shall be allowed to be carried forward by the resulting company for the remaining period.
If such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred, it will be
apportioned between the demerged company and the resulting company in the same proportion in which the assets
have been distributed.

Set Off and Carry Forward of losses in case of Conversion of Proprietary Concern or
Partnership Firm into a Company.

Set Off and Carry Forward in case of Conversion Section 72A

If any proprietary concern has been converted into a company, unadjusted losses under the head of
'business/profession and unabsorbed depreciation of the proprietary concern shall be considered to be that of the
company as if incurred in the year of conversion and set off and carry forward shall be allowed accordingly
however the proprietor should hold at least 50% of the shares for a period of at least 5 years from the-date of
conversion.
If any partnership firm has been converted into a company, unadjusted losses under the head business/profession
and unabsorbed depreciation of the firm shall be considered to be that of the company as if incurred in the year
of conversion and set off and carry forward shall be allowed accordingly however the partners should hold at least
50% of the shares for a period of at least 5 years from the date of conversion.

Set Off and Carry Forward of Losses in case of conversion of Private Company or Unlisted
Public Company into Limited Liability Partnership Firm.

Set Off and Carry Forward in case of Conversion Section 72A

If any private company or unlisted public company has been' converted into a Limited Liability Partnership Firm,
unadjusted losses under the head business/profession and unabsorbed depreciation shall be considered to be that
of LLP as if incurred in the year of conversion provided the shareholders of the company have at least 50% shares
in the profit of LLP for a period of at least 5 years from the date of conversion and also value of the assets as
appearing in the books of accounts of the company was not exceeding Rs.5crores in any of the 3 years preceding
the year of conversion.

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT

PROF. VINIT KUMAR TAXATION 9873126173

Loss from Agriculture

Loss from Agriculture cannot be set off from incomes of other heads similarly, loss of other heads cannot be set
off from Agriculture Income.
Loss from agriculture can be set off only from agricultural income and carry forward is allowed for 8 years and in
subsequent years also it can be set off from agriculture income.

Q8:- Mr. A submits the following particulars pertaining to the A.Y.23-24:

Particulars
Income under the head salary 4,00,000
Loss from self-occupied property (-) 70,000
Business loss (-)1,00,000
Bank interest (FD) received 80 000 ,
Compute the taxable income of Mr. A .
Solution: Computation of taxable income of Mr. A
Particulars Amount
Loss under the head of Salary 4,00,000
Less : Loss from house Property (30,000)
3,30,000
Income under the head Other sources
Income from other sources (interest on fixed deposit with bank) 80,000
Less : Loss from Business (1,00,000)
Business loss to be carried forward (20,000)
Gross total income 3,30,000
Less : Deduction under chapter VIA Nil
Taxable income 3,30,000

Q9: Mr. B, a resident individual, furnishes the following Particular for the P.Y 2022-23:
Particular Rs.
Income under the head salary 45,000
Loss from house Property (24,000)
Loss from business non-speculative (22,000)
Loss from speculative business (4,000)
Short-term loss (25,000)
Long-term capital loss 19,000

What is the total income chargeable to tax ?

Solution: The total income chargeable to tax is calculated as under:
Particulars
Income under the head salaries 45,000
Less: Loss from house property (24,000)
21,000

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT

PROF. VINIT KUMAR TAXATION 9873126173
Profits and gains of business and profession
Business loss to be carried forward [Note 1] (22,000)
Speculative loss to be carried forward [Note 2] (4,000)
Capital Gains
Long term capital gain 19,000
Less: Short term capital loss (25,000)
Short term capital loss to be carried forward [Note 3] (6,000)
Gross Total Income 21,000
Note 1: Business loss cannot be set-off against salary income. Therefore, loss of 22,000 from the non-speculative
business cannot be set off against the income from salaries. Hence, such loss has to be carried forward to the
next year for set-off against business profits, if any.
Note 2: Loss of Rs.4,000 from the speculative business can be set off only against the income from the
speculative business. Hence, such loss has to be carried forward.
Note 3: Short term capital loss can be set off against both short term capital gain and long term capital gain.
Therefore, short term capital loss of Rs.5,000 can be set-off against long-term capital gains to the extent of
Rs.19,000. The balance short term capital loss of 6,000 cannot be set-off against any other income and has to be
carried forward to the next year for set-off against capital gains, if any.

Q10:- During the P.Y. 2022-23, Mr. C has the following income and the brought forward losses:
Particulars Rs.
Short term capital gains on sale of shares 1,50,000
Long term capital loss of A.Y. 2019-20 (96,000)
Short term capital loss of A.Y. 2020-21 (37,000)
Long term capital gain 75,000
What is the capital gain taxable in the hands of Mr. C for the A.Y.?

Solution: The capital gains taxable are as under:

Particulars Rs. Rs.
Short term capital gains on sale of shares 1,50,000
Less: Brought forward short term capital loss of the A.Y.2020-21 (37,000) 1,13,000
Long term capital gain 75,000
Less: Brought forward long term capital loss of A.Y.2019-20 [See Note (75,000) NIL
below]
1,13,000
Taxable short-term Capital gains

Note: Long-term capital loss cannot be set off against short-term capital gain. Hence, the unadjusted long term
capital loss of A.Y. 2019-20 of Rs.21,000 (i.e. Rs.96,000 — Rs.75,000) has to be carried forward to the next year
to be set-off against long-term capital gains of that year.

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT

PROF. VINIT KUMAR TAXATION 9873126173
Q11: Mr. D has the following income for the P.Y. 2022-23 —
Particulars Rs.
Income from the activity of owning and maintaining the race horses 75,000
Income from textile business 85,000
Brought forward textile business loss 50,000
Brought forward loss from the activity of owning and maintaining the race horses (relating 96,000
to Rs.96,000 A.Y.2020-21)
What is the taxable income in the hands of Mr. D for the A.Y. 2023-24?

Solution: The taxable income is calculated as under:

Particulars
income from the activity of owning and maintaining race horses 75,000
Less: Brought forward loss from the activity of owning and (96,000)
maintaining race horses (21,000)
Loss from the activity of owning and maintaining race horses to be
carried forward to A. Y.2023-24
Income from textile business 85,000
Less: Brought forward business loss from textile business. (50,000) 35,000
Taxable business income 35,000

Note: Loss from-the activity of owning and maintaining race horses cannot be set-off against any other
source/head of income.

Q12:-: Mr. E has furnished his details for the A.Y.2023-24 as under:
Particulars Rs.
Income from salaries 1,50,000
Income from speculation business 60,000
Loss from non-speculation business (40,000)
Short term capital gain 80,000
Long term capital loss of A.Y.2021-22 (30,000)
Winning from lotteries 20,000
What is the taxable income of Mr. E. for the A.Y.?

Solution:
Computation of taxable income of Mr. E
Particulars Rs. Rs.
Income from salaries 1,50,000
Income from speculation business 60,000
Less : Loss from non-speculation business (40,000) 20,000
Short-term capital gain 80,000
Winning from lotteries 20,000
Taxable Income 2,70,000
Note: Long term capital loss can be set off only against long term capital gain. Therefore, loss of 30,000 has to be
carried forward to the next assessment year.

CLASSES BY VINIT SIR FOR INTER :- TAXATION & FINANCIAL MANAGEMENT