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Set off & Carry forward of Losses

Set off of losses under the same head of income

If there is a loss from any source of income under any head, then it is to be set off against income from any other source under the same head. The exceptions to this rule are

  • Loss from speculation business- Loss in speculation business can be set off only against the profit in a speculation business.
  • Long term capital loss – Long term capital loss can be set off only from long term capital gain.
  • Loss from speculation business – Any loss from any specified business under section 35AD shall not be set off except against profits and gains of any other specified business.
  • Loss from activity of owning and maintaining horse race – Loss from business of owning and maintaining horse race can be set off only against profit from such business.
  • Loss cannot be set off against winning from lotteries, crossword puzzles etc. [Sec 58(4)] – a loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse races, card games or games of any other sort or gambling or betting of any form or nature.

Treatment of unabsorbed depreciation is made in a different manner. Check this guide for complete details.

Set off of loss from another head of income

After setting off of losses under the same head, if loss remains unabsorbed then the remaining loss can be sett off from income from other heads.The following are exemptions to the aforesaid rule-

  • Loss In a speculation business cannot be set off from any other income.
  • Capital loss cannot be set off from any income under other head.
  • Any loss from any specified business u/s 35AD cannot be set off against other head of income.
  • Loss from activity of owning and maintaining horse racecannot be set off against other head of income.
  • Loss from business/profession cannot be set off against income under the head “salaries”
  • Loss cannot be set off against winning from lotteries, crossword puzzles etc. [Section 58(4)] – a loss cannot be set off against winnings from lotteries, crossword puzzles, races including horse races, card games or games of any other sort or gambling or betting of any form or nature.
  • Where income from a particular source is exempt from tax, loss from such a source cannot be set off against income chargeable to tax.

Carry forward and set off of loss from house property

If there is a loss under the head House Property and it cannot be set off or only partially set off under the same head or other head of income under section 71 then  such loss can be carried forward to 8  subsequent years. The loss so carried forward can be set off from income under the head “House Property”(not from income under other heads).

There is no condition that carry forward is allowed only when return is submitted within time limit under section 139. Also, the loss under house property is allowed to be carried forward even if the house property is sold in next assessment years.

Carry forward and set off of business loss other than speculation loss

If there is a loss from a business/profession and it cannot be set off or only partially set off under the same head or other head of income under section 71 then  such loss can be carried forward to subsequent years. The loss so carried forward can be set off from profits and gains of any business or profession (not from income under other heads).

Loss can be carried forward for a period of eight years from the year in which the loss is occurred.

Loss can be set off even if the business to which the loss relates is not in existence in the year of set off.

These provisions doesn’t apply to speculation loss.

Loss can be carried forward only when a return is filed by assessee under section 139 within due date. If return is submitted after due date the delay may be condoned if a few conditions are satisfied. Circular no. 8/2001 dated may 16 2001

Loss under section 35AD can be set off only from profits of businesses referred to in section 35AD.

Carry forward and set off of capital loss

If there is a loss under the head Capital Gains and it cannot be set off or only partially set off under the same head or other head of income under section 71 then  such loss can be carried forward to subsequent years. The loss so carried forward can be set off from income under the head “Capital Gains”(not from income under other heads).

Long term capital loss can be set off only against long term capital gain.

Loss can be carried forward for a period of eight years from the year in which the loss is occurred.

Loss can be carried forward only when a return is filed by assessee under section 139 within due date. If return is submitted after due date the delay may be condoned if a few conditions are satisfied. [ circular no. 8/2001 dated may 16 2001]

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