Presented & Compiled by:-

Pardeep K. Madaan
Director
PK Tax Classes
AY = 2022-23 Mobile No. 98140-98739
AY = 2022-23
Generally an assessee is taxed in respect of his own income. In some
cases, however, the Income tax Act deviates from this principle and the
assessee may be taxed, under sections 60 to 64, in respect of incomes,
which legally belong to other person. Provisions incorporated in these
sections deal with cases where taxpayers make an attempt to reduce
their tax liability by transferring their assets in favour of their family
members or by arranging their sources of income in such manner that
tax incidence falls on others, whereas benefit of income directly or
indirectly, is derived by them. In order to counteract these practices of
tax avoidance, necessary provisions have been made in sections 60 to
64 to tax incomes in the hands of an individual even though such
incomes belong to other persons.
 Particulars Details Amount

Income from Salaries

Clubbing
(+) Income from House Property of Income
+ Set Off
(+) Income from Business & profession
& Carry
(+) Income from Capital Gains forward of
losses
(+) Income from Other Sources

=Gross Total Income = GTI

(Less) Deductions u/s 80-C to 80-U

= TI
= Total Income
 Mr X. has also shown that his
Mr X. has shown his income
wife also earned income of
of Rs. 10,00,000 for the
Rs. 10,00,000 for the
Previous Year
Previous Year
Tax on Total Income of Mr. X Tax on Total Income of Mrs. X
First Rs. 2,50,000 Nil 0
First Rs. 2,50,000 Nil 0

Next Rs. 2,50,000 @ 5% 12,500

Next Rs. 2,50,000 @ 5% 12,500

Next Rs. 5,00,000 @20% 1,00,000

Next Rs. 5,00,000 @20% 1,00,000

Total tax 1,12,500

Total tax 1,12,500
 As per clubbing provisions Mr. X should show
his income as Rs.20,00,000 and shall calculate
tax as under

First Rs. 2,50,000 NIl

Next Rs. 2,50,000 @ 5% 12,500
Next Rs. 5,00,000 @20% 1,00,000
Balance 10,00,000 @30% 3,00,000
Tax Payable 4,12,500
Any salary, commission, fees or other
remuneration received by the spouse from
any organisation in which other spouse has
substantial interest i.e. 20% voting right or
right to receive 20% profit together with all
relatives will be clubbed with the income of
the individual/spouse having substantial
interest in the organisation. But in case other
spouse has technical or professional
knowledge and he/she is approved in the
organisation due to his/her technical or
professional knowledge there will be no
aggregation.

Where both Husband and wife have a

substantial interest in the concern and both
are in receipt of remuneration from such
concern, remuneration will be included in the
total income of husband or wife whose total
income, excluding such remuneration is
higher.
Revocable transfer of assets:-
Revocable transfer means the transferor can
take assets back at any time, it will remain
property of the transferor and income from
such assets will be included in the income of
transferor except: -
a) Transfer if effected through medium of
trust, is not revocable during the lifetime
of beneficiary.
b) In case of any other transfer, the same is
not revocable during the lifetime of
transferee.
c) In case the transfer is made before 1-04-
1961, the transfer is revocable for a
period exceeding 6 years.
Income from assets transferred to spouse:-
Income from assets transferred to spouse without adequate consideration will be
deemed to accrue in the hands of transferor as the transferor will remain the owner
for the purpose of income tax except:-
– When the two decides to live apart or when the transfer is made with full consideration.
– It must be noted that relationship of husband and wife must subsist at the time of
making transfer and at the time of accruing income. e.g. Transfer of assets before
marriage to a women is out of purview of this section.
Income from assets transferred to son’s wife:-
If an individual, directly or indirectly transfers assets after May 31, 1973 without
adequate consideration to son’s wife, income arising from such assets will be included
in the total income of transferor.
It must be noted that relationship of Father-in-law(mother-in-law) and Daughter-in-
law must subsist at the time of making transfer and at the time of accruing income.
e.g. Transfer of assets before marriage to a women is out of purview of this section.
Income from assets transferred to a person for the benefit of spouse:-
When an asset is transferred by an individual, directly or indirectly without adequate
consideration to a person for the benefit of his or her spouse income arising from the
transferred assets will be included in the total Income of the assessee/transferor.
Income from assets transferred to a person for the benefit of son’s wife:-
When an asset is transferred by an individual, directly or indirectly without adequate
consideration after May 1, 1973, to a person for the benefit of son’s wife, income
arising from the transferred assets will be included in the total Income of the
assessee/transferor.
Income of minor child:-
The income of minor will be clubbed in the income of that
parent whose total income is greater and where the marriage
of parents does not subsist, the income of minor will be
includible in the income of that parent who maintains the
minor child in the relevant previous year.

Exceptions:-
– Income earned by the minor due to manual work or due to specilised
skill or knowledge will not be clubbed.
– Income of a minor child suffering from any disability u/s 80 U will
not be clubbed.

Exemption:-
– When income of minor is clubbed with the income of parents, they
will be entitled for exemption of Rs. 1,500 per child or income earned
by the minor whichever is less.
Conversion of self acquired property into joint family property:-
In case an individual transfers self acquired property to Hindu
Undivided family of which he is a member without adequate
consideration, income arising from such transferred assets will
be includible in the hands of transferor.
In case partition takes place and such property is also the
subject of partition then transferor will be liable to pay tax on
the share of income received from such assets by himself and
his wife.
Clubbing of Negative income:-
The word income includes a loss i.e. if income of other person
is included in the income of individual likewise the loss of other
person should also be deducted from the income of individual.
 SET-OFF AND CARRY FORWARD OF LOSSES
Question:- Explain the provisions of the Income Tax Act, 1961, regarding carry forward and
set-off of losses?
• Income is computed under five different heads of income. One can easily find out gross total
income if income, under each head from each source is positive. Problems, however, arise if
there is a loss from one or more sources under one or more heads of Income. The rules of
setting off of losses and their carry forward are discussed as below:-

• Set-off:- Set off means to adjust or to accommodate the loss against income.
• Carry forward:- Losses which cannot be set off against income in the same year to be carried
forward to next year to set off in that year.

• Set-off of losses:- It can be discussed under two steps

– Inter source adjustment under the same head.[Sec. 70]
– Inter head adjustment in the same assessment year.[Sec. 71]
 Inter Source Adjustment under the same Head
Particulars Taxable
Amount
Income From House Property
➢House A 40,000
➢House B 30,000
➢House C 20,000 90,000
➢House D -10,000 -10,000 80,000
Income From Business And Profession
•Non-Speculative business
➢Business - Tea 40,000
➢Business - Cloth -60,000 -20,000
•Speculative Business
➢Profit 75,000
➢Loss -25,000 50,000 30,000
Gross Total Income (GTI) 1,10,000
General Rule :-
If the net result for any AY, 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 the same
head of income for the same AY.
Exceptions:-
❑ Loss from speculation business: - can be set off only against the profit in a speculation
business.
❑ Loss from a specified business: - as referred in Section 35 AD, shall not be set off except
against profits and gains, if any, of any other specified business.
❑ Long term Capital Loss: - can be set off only against long-term capital gain.
❑ Loss from activity of owning and maintaining race horses: - cannot be set off against any
income except income from such business.
❑ Loss cannot be set-off from Exempted Incomes
❑ Loss cannot be set off against winnings from lotteries, crossword puzzles etc :-By virtue of
Section 58(4), a loss cannot be set off against winnings from lotteries, crossword puzzles, races
including horse races, card games and other games of any sort or from gambling or betting of
any form or nature.
❑ Loss from lotteries, crossword puzzles, gambling betting cannot be set-off from any source of
income
 Inter Source Adjustment under the same Head
Particulars Taxable
Amount
Income From Capital Gains
•LTC Gain 40,000
•LTC Loss -30,000 10,000
✓STC Gain 50,000
✓STC Loss -60,000 -10,000 NIL
Income From Business And Profession
•Non-Speculative business
➢Business - Tea -40,000
➢Business - Cloth 60,000 20,000
•Speculative Business
✓Profit 75,000
✓Loss -1,45,000 -70,000 20,000
Gross Total Income (GTI) 20,000
 Inter-head Adjustment
Particulars Taxable
Income From House Property 1,70,000 1,70,000
Income From Capital Gains
•LTC Gain 40,000
•LTC Loss -50,000 -10,000 C/F
✓STC Gain 70,000
✓STC Loss -60,000 10,000 10,000
Income From Business And Profession
•Non-Speculative business
➢Business - Tea 40,000
➢Business - Cloth -60,000 -20,000 -20,000
•Speculative Business
✓Profit 75,000
✓Loss -1,45,000 -70,000 C/F
Gross Total Income (GTI) 1,60,000
General Rule: - 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.
Exceptions :-
❑ Loss in a speculation business- Loss in speculation business cannot be set off against any other income.
❑ House Property Loss exceeding Rs. 2,00,000- House property loss in excess of Rs. 2,00,000 cannot be set off against
income under the other heads of Income.
❑ Loss in a business specified under section 35AD- Loss, computed in respect of any specified business referred to in
Section 35AD, cannot be set off against any other income.
❑ Loss under the head “Capital gains”- cannot be set off against income under other heads of income.

❑ Loss from the activity of owning and maintaining race horses- cannot be set off against any other income.

❑ Loss cannot be set-off from Exempted Incomes.

❑ A loss cannot be set off against winning from lotteries, etc. - By virtue of section 58(4) a loss cannot be set off against
winnings from lotteries, crossword puzzles, races (including horse races), card games and other games of any sort or from
gambling or betting of any form or nature.

❑ Loss from lotteries, crossword puzzles, gambling betting cannot be set-off from any source of income.

❑ Business loss cannot be set of against salary. [Sec.71(2A)]

If a loss cannot be set-off because of absence or inadequacy of the income of the same year, it may be carried forward and set-off
against the income of subsequent years. Under the act the following losses can be carried forward:-
❑ Loss from ‘Salary’ cannot be carried forward.
❑ Loss under the head ‘Income from House property’ can be carried forward to next 8 Assessment years and can be set-off from
the income from house property. This provision is applicable from the AY 1999-2000.
❑ Loss under the head ‘Profits and gains of business or profession’ either speculation business loss or non-speculation loss
can be carried forward to next 8AY.
❑ Discontinued speculation business loss can be set off against income from any existing speculative business only.
❑ Non- speculation business loss can be carried forward for next 8AY and can be set-off from the head business income including
speculation business.
❑ Discontinued non-speculation business loss can be set-off from the head business income.
❑ Speculative business loss can be carried forward for the next 4AY and can be set-off against income from any existing
speculation business income only
❑ Short-term capital loss/ Long-term capital loss can be carried forward for the next 8AY and can be set-off from the head
capital gains only.
❑ Loss from the activity of owing and maintaining horse races can be carried forward for next 4AY and can be set off against
the income from such activity only.
❑ Unabsorbed Depreciation, unabsorbed capital expenditure on scientific research and rural development can be carried
forward till fully exhausted (means can be carried forward for infinity) and can be set-off from any head of income.
In case the following expenses had not been adjusted from the business income then these can be adjusted in the following
order.
❑ Current depreciation
❑ Unabsorbed losses of earlier years.
❑ Unabsorbed depreciation of earlier years.
 Provisions of Set-off at a Glance
Sr. Loss Intra-Head set-off Inter-Head set-off Carry forward Time Period
No (Current Year) (Current Year) against which head
1. Loss from Salary No Loss X Not Allowed
2. Loss from House Income from HP (anyAny other head Income from HP (No Next 8 AY
property source) including Salary Limit)
(Max. upto 2 Lakh)
3. Speculation Business Speculation business X (Not Allowed) Income from Next 4 AY
Loss only speculative business
only
4. Specified Business Income from X (Not Allowed) Income from No Limit
Loss U/s 35AD Specified business Specified business Infinity
u/s 35 AD u/s 35 AD
5. Speculative Business Income from X (Not Allowed) Speculative business Next 4 AY
Loss Speculative business income only
6. Loss from Business Income from Any other head Loss from Business Next 8 AY
(Non-Speculative) business (any excluding Salary (any source)
Source) [S+NS+ SB] [S+NS+ SB]
 Provisions of Set-off at a Glance
Sr. Loss Intra-Head set-off Inter-Head set-off Carry forward Time Period
No (Current Year) (Current Year) against which head
7. Unabsorbed Income from Any other head Any other head No Limit
Depreciation, Scientific business (any excluding Salary excluding Salary Infinity
Research & Family Source)
Planning [S+NS+SB]
8. Short-term Capital Loss Income from Capital X (Not Allowed) Income from Capital Next 8 AY
Gains (STCG + LTCG) Gains (STCG + LTCG)
9. Long-term Capital Loss LTCG only X (Not Allowed) LTCG only Next 8 AY
10. Loss from owing & Income from owing X (Not Allowed) Income from owing Next 4 AY
Maintaining Horse race & maintaining Horse & maintaining Horse
(Race course loss) race. race.
11. Loss from Card games, Ignore (no set-off) X (Not Allowed) Ignore (no set-off) --
lotteries, gambling
12. Any other loss from Income from other Any other head Not Allowed No C/F
other sources source (any Source) including Salary
 Solution to Q. No. 8
Particulars Inter Source Inter head Taxable
Income From Other Sources
Interest on Securities 24,500 24,500
Owing and Maintaining Horse Races 15,000
Less: b/f loss of AY 2015-16 -18,000 c/f 3,000
Income from Lotteries & Card Games {20000+16000} 36,000
Income From Capital Gains
•LTC Loss -20,000 C/f -20,000
✓STC Gain 50,000
✓Less:- short term capital loss brought forward -10,000 40,000 40,000
Income From Business And Profession
•Non-Speculative business
➢Business - A 80,000
➢Business - B -20,000 60,000
•Brought forward unabsorbed depreciation -25,000
•Brought forward business loss -18,000 17,000
•Speculative Business
✓Business - C Loss -60,000 C/F-60,000
Gross Total Income (GTI) 1,17,500
 Particulars 2018-19 2019-20
Income from House property 8,000 8,000
Income from other sources 5,000 6,000
Owing and Maintaining Horse Races
Less: b/f loss of AY 2015-16
Income from Lotteries & Card Games {20000+16000}
Income From Capital Gains
•LTC Loss
✓STC Gain -5,000 C/F
✓Less:- short term capital loss brought forward
Income From Business And Profession
•Non-Speculative business
➢Business – A 15,000 – 32,000 = Unabsorbed Depreciation -17,000 -6,000 13,000
➢Business - B
•Brought forward unabsorbed depreciation
•Brought forward business loss
•Speculative Business 6,000
✓Business - C Loss -8,000 C/F
Gross Total Income (GTI) 2,000 27,000