SET OFF AND CARRY FORWARD OF LOSS
The adjustment of losses against profit in a particular year is called SET OFF. Losses which are not set off against profit of a year can be carried forward to next year and set off against profit of such year and it is called carry forward of loss.
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Different ways to set off losses
As we have already discussed set off of losses means adjustment of losses against profit in a particular year. It can be done in different ways i.e.
•Intra-head set off of losses.
•Inter-head set off of losses.
Intra-head Set off of losses
The losses from one source of income can be set off against profit from another source of income falling under the same head of income. For example losses of Business X can be set off against profit of business Y. In the given example common head of income is “Business” and losses from one business is set of against profit from another business.
Exceptions to Intra-head set off of losses
>Losses of Speculation business can only be set off against profit of Speculation business NOT against any other business.
>Losses from a business specified in section 35AD of Income Tax can only be set off against profit of business specified in section 35AD of Income Tax NOT against any other business.+
>LTCL can only be set off against LTCG NOT against STCG. However STCL can be set off against both i.e. LTSG and STCG.
>Losses from the business of owing and maintaining horse-race can only be set off against profit from owing and maintaining horse-race.
>Losses from crosswords games or lotteries or puzzles or card games etc. can only be set off against income from same business.
Inter-head Set off of losses
Once the Intra-head set off of losses is done, the taxpayer can also set off his remaining losses against other source of income. For example loss from House Property can be set off against Salary.
Exceptions to Inter-head set off of losses
> Before inter-head set off of losses, taxpayer should make Intra-head adjustment
> No business loss can be set off against salary.
> Losses from house property will only be allowed to set off against any other source of income upto Rs. 200000 (Two Lakh).
> Losses of Speculation business can only be set off against profit of Speculation business NOT against any other income.
> Losses from a business specified in section 35AD of Income Tax can only be set off against profit of business specified in section 35AD of Income Tax NOT against any other income.
> LTCL can only be set off against LTCG NOT against STCG. However STCL can be set off against both i.e. LTSG and STCG but capital losses cannot be set off against any other income.
> Losses from the business of owing and maintaining horse-race can only be set off against profit from owing and maintaining horse-race NOT against any other income.
> Losses from crosswords games or lotteries or puzzles or card games etc. can only be set off against income from same business NOT against any other income.
Carry forward of losses
| Head of loss | Condition for Carry forward | Maximum years for which loss can be forwarded | Head against which loss can be set off |
| House property | No conditions | 8 years after the assessment year | House property |
| Speculative business
|
Return should be filed on or before due date
It is not necessary to continue business in future |
4 years after the assessment year
|
Speculation business |
| Business specified in section 35AD | Return should be filed on or before due date
It is not necessary to continue business in future |
NO limit | Business specified in section 35 AD |
| Capital Losses | NO conditions
|
8 years after the assessment year | LTCL should be set off against LTCG
STCL can be set off against LTCG or STCG
|
| Losses from owing and maintaining horse-race | No condition | 4 years after the assessment year | Income from owing and maintaining horse-race |
What is speculation business ??
As per Section 43 (5) of the Income Tax Act, Speculative transaction is a transaction where a contract for the purchase or the sale of any commodity, including stocks and shares is periodically or is ultimately settled otherwise than by the actual delivery or transfer of the commodity or scrip.
What are businesses specified in section 35AD ??
• Laying as well as operating a cross country natural gas/crude/petroleum pipeline network for distribution on or after 1st April 2007.
• Cold chain facility on or after 1st April 2009.
• Warehousing facility for storing of agricultural product on or after 1st April 2009.
• Building as well as operating a hotel of two star and above on or after 1st April 2010.
• Building as well as operating a hospital of 100 beds and above for patients on or after 1st April 2010.
• Building as well as developing a housing facility for slum on or after 1st April 2010.
• Building as well as developing a housing facility for affordable housing on or after 1st April 2011.
• Production of fertilizer in India on or after 1st April 2011.
• Warehousing facility for storing of sugar on or after 1st April 2012.
• Setting up as well as operating an inland container depot on or after 1st April 2012.
• Bee keeping as well as production of honey and beeswax on or after 1st April 2012.
• Laying as well as operating a slurry pipeline for transportation of iron ore on or after 1st April 2014.
• Setting up as well as operating a semi-conductor wafer fabrication manufacturing unit on or after 1st April 2014.
• Maintaining and operating a new infrastructure facility on or after 1st April 2017.
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