1
SET OFF & CARRY FORWARD
OF LOSSES
2
WHY SET OFF & CARRY FORWARD
• IF THERE IS A LOSS FROM ONE OR MORE
SOURCES UNDER ONE OR MORE HEADS
OF INCOME
• RULES ARE COVERED U/S 70 TO 79
3
MODE OF SET OFF & CARRY FORWARD
STEP 1- INTER SOURCE ADJUSTMENT
UNDER THE SAME HEAD OF INCOME
(SEC 70)
STEP 2- INTER HEAD ADJUSTMENT IN THE
SAME ASSESSMENT YEAR (SEC 71)
STEP 3- CARRY FORWARD OF A LOSS
4
INTER SOURCE ADJUSTMENT (SEC 70)
If there is a loss in respect of any source under any
head of income for any Asst year then it can be set
off under any other source under the same head
EXAMPLES
Business A 100000 House Property X 75000
Business B 70000 House Property Y (40000)
Business C (120000)
Net Result 35000
Net Result 50000
5
INTER SOURCE ADJUSTMENT (SEC 70)
EXCEPTIONS:-
• Loss from speculation business
• Long term capital loss
• Loss from activity of owning & maintaining race
horses
• Loss cannot be set off against winnings from
lotteries, crossword puzzles, card game etc.
6
INTER HEAD ADJUSTMENT (SEC 71)
When there is loss in respect of any head of
income for any assessment year then it can be
set off against income from other heads
EXAMPLE
Salary Income 80000
House Property (30000)
Net Result 50000
7
INTER HEAD ADJUSTMENT (SEC 71)
EXCEPTIONS:-
• Loss in a speculation business
• Loss under the head capital gains
• Loss from activity of owning &maintaining race
horses
• Loss cannot be set off against winnings from
lotteries, crossword puzzles , card game etc.
• Business Loss cannot be adjusted against Salary
Income
8
CARRY FORWARD OF LOSS
Under the act following losses can be carried forward:
• Loss under head Income from ‘House Property’ (sec
71B)
• Loss under head ‘P & G of B or P’ (sec 72 & sec 73)
• Loss under the head ‘Capital Gains’ (sec 74)
• Loss from activity of owning & maintaining race horses
(sec 74A)
Other remaining losses cannot be carried forward.
9
SPECULATION BUSINESS
Transaction in which a contract for
the purchase or sale of any
commodity, including stocks and
shares, is periodically or ultimately
settled, otherwise than by the actual
delivery or transfer of the commodity
or scrip's.
10
Exceptions :
Contract in respect of -
•Raw material or merchandise
Guard against
•Stocks and shares by a
price
dealer or investor fluctuation
•Member of forward market or a
stock exchange in the course of
jobbing or arbitrage
Speculative business in case of a company:
Any part of the business of a company consists in the
purchase and sale of shares of other companies, such
company shall be deemed to be carrying on a speculative
business to the extent to which the business consists of
purchase and sale of such shares.
11
CARRY FORWARD & SET OFF OF SPECULATION
LOSS
• Speculation loss can be set off only against
speculative income
• Loss can be carried forward for 4 yrs.
• Continuity of business not necessary.
• Filing of Return of loss should be submitted in
time
12
CARRY FORWARD & SET OFF OF BUSINESS LOSS
OTHER THAN SPECULATION LOSS
(SEC 72)
• Loss carried forward, can be set off only against
business income
• Losses can be carried forward by the person who
incurred the loss (exceptions to rule)
• Loss can be carried forward for 8 yrs
• Return of loss should be submitted in time
• Continuity of business not necessary
• Carry forward of unabsorbed depreciation, capital
expenditure on scientific research & family planning
expenditure
13
CARRY FORWARD OF UNABSORBED
DEPRECIATION (Sec 32(2))
• No time limit is fixed for the purpose of carry
forward.
• In the subsequent year(s) it can be set off against
any head. except winnings from lotteries,
crossword puzzles & Salaries
• Continuity of business not relevant.
• Following order of priority is followed.
(1) Current Depreciation
(2) Brought Forward Business loss
(3) Unabsorbed Depreciation
14
CARRY FORWARD & SET OFF OF
LOSS & DEPRECIATION SEC (72A)
Depreciation and Business loss can be
carried forward by a person who has
incurred the loss
Exceptions-
• Amalgamation of Companies
• Demerger
• Conversion of a proprietary concern/firm
into company
15
CARRY FORWARD & SET OFF OF LOSS FROM
HOUSE PROPERTY (SEC 71B)
• Applicable from Asst yr 1999-2000
• Loss can be carried forward for 8 yrs
• Return of loss need not be submitted in time
16
CARRY FORWARD & SET OFF OF LOSS FROM
ACTIVITY OF OWNING & MAINTAINING
RACE HORSES (SEC 74A)
• Continuity of Business necessary
• Loss can be carried forward for 4 yrs
• Return of loss should be submitted in time
• Not applicable for other race animals
• Allowed only to the extent of stake falls short
of revenue expenditure
