CHAPTER 9

SET OFF AND CARRY FORWARD OF LOSSES

Meaning of set off of losses

Set off of losses means 1. setting off of losses under one source of income against income from another source of income of the same head of income and 2. the setting off of losses under one head of income against the income under another head of income of the same assessment year.

Intra head set off

Set- off of losses under one source of income under another source of income under the same head. Exceptions: 1. Speculation loss cannot be set off against the profit from non speculation business(but loss from non speculation business can be set off against profit from speculation business)

2. Loss from the activity of owning and maintaining race horses can be set off only against the profit from owning and maintaining race horses and not against any other income under the head Income from other sources. 3. Long term capital loss can be set off only against long term capital gains. 4. Loss cannot be set off against winning from lotteries, cross word puzzles etc

Inter head set off

Set off of loss under the head of income against income from another source of income. Exceptions 1. Speculation loss cannot be set off against the income from any other head of income 2. Loss from business or profession cannot be set off against income under the head salaries

3. Losses from cross word puzzles, lotteries, gambling, card games races including horse races, etc. cannot be set off either against the income from the same source or against the income under any other head of income. 4. Capital loss can be set off only against capital gains. It cannot be set off against the income from any other head of income.

Carry forward of losses

When it is not possible to set off the losses during an AY against income during the same AY, it can be carry forwarded for setoff against income in the suceeding AYs.

Provisions
Following losses can be carried forwarded for setoff in the succeeding years 1. Loss under the head income from house property(limited to 8 years). 2. Loss on non-speculative business 3. Loss on speculative business 4. Capital loss (both short term & long term) 5. Loss from the activity of owning & maintaining race horses.

Carry forward & set off of losses from Business ( Sec 72)
Losses from business which could not be set off in the same PY can be carried forward to subsequent 8 Assessment years for set- off

Others
Sec -73 Speculation loss can be carried forward for set off against speculation income for 4 Ays. Sec 74 The capital loss can be carried forward for set off against income from capital gains for 8 Ays Sec 74A Loss from the activity of owning and maintaining race horses can be carried forward for set off for 4 AYs

Unabsorbed business loss carried forward for set off should be set off before setting off unabsorbed depreciation, unabsorbed capital expenditure on scientific research and unabsorbed capital expenditure on family planning. The carried forward business loss can be set off only after current years depreciation, current years capital expenditure on scientific research and current years capital expenditure on family planning.