GANESH SIDDHESHWAR

MBA II (FINANCIAL MANAGEMENT)

Meaning of Set off of losses
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.
 Meaning of Carry forward of losses

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.
Carry Forward of Loss
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.
 Table showing various sections of set off & carry
forward of losses:
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.
Mode of Set Off & Carry Forward
1. Inter – source adjustment under the
head of income (intra head
adjustment)
2. Inter – head adjustment in the same
assessment year.
3. Carry forward of loss.
 Inter Source Adjustment (Sec 70)

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.
 Example
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.
Rules
 Inter – Head Adjustment (Sec. 71)

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.
 Example
X has two non speculative businesses A Besides he has income from house
& B. 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(290000-

70000) can be set off with House Property income of Rs.
510000. Therefore the net income taxable is Rs. 290000.
Rules
Exceptions
 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.
 Carry forward and set off of loss from
house property (section 71B)
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.

Carry forward & set off of business loss
(section 72)

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.
Carry forward & set off of accumulated
loss & unabsorbed depreciation
allowance in cases of amalgamation
(section 72A)

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.
 Carry forward of speculation loss
(section 73)

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.
Carry forward of Capital Losses (section
74)
 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.
Carry forward and set off of loss from
activity of owning and maintaining horse
races
(section 74A)
 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).
 Provisions in brief
Type of Loss to be carried forward to Income against which carried forward loss Years
the next year(s) can be set off in next year(s)

HOUSE PROPERTY LOSS INCOME FROM HOUSE PROPERTY 8 YEARS.

SPECULATION LOSS SPECULATION PROFITS 4 YEARS.

NON SPECULATION BUSINESS
LOSS:
Unabsorbed Depreciation, Scientific ANY INCOME NO TIME
Research & Family Planning LIMIT
Expenditure
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
LOSS FROM ACTIVITY OF INCOME FROM SUCH ACTIVITY 4 YEARS
OWNING & MAINTAINING RACE
HORSES
THANK YOU………..!!   