Set off and Carry Forward of Losses

Updated upto A.Y. 2018-19

0
2552
Set off & Carry Forward of Losses

For computation of Gross Total Income (GTI), income from various sources is computed under the five heads of income. If all the sources and heads are having positive income (i.e. profit) then the same can simply be added to compute GTI. However, if certain source(s) or certain head(s) have negative income (i.e. loss) then such loss needs to be adjusted with income of another source(s) or head(s). Set off means adjustment of loss from one source or one head against income from another source or another head.

If a negative income is not fully set off in the current year, then the unabsorbed loss shall be carried forward to subsequent years subject to certain restrictions and conditions [e.g. Income from other sources (other than losses from activity of owning and maintaining horse races) cannot be carried forward.]

Set off of Loss

When the net result of any source of income is loss, it can be set off against income from any other source under the same head. Rules regarding set off of losses are here-in-below:

wdt_IDSort ManagerHead or Source of IncomeIntra Head Adjustment u/s 70Inter Head Adjustment u/s 71Carry Forward Allowed
101

Income from House Property

With any income under the same headWith any income under other head subject to cap of ₹ 2,00,000/-Yes
202

Profit & Gains of Business or Profession (Speculative)

With Speculative income onlyNo AdjustmentYes
303

Profit & Gains of Business or Profession (Non-Speculative)

Any income under the headWith any income under other head except salaryYes
404

Unabsorbed Depreciation

Any income under the headWith any income under other head except salaryYes
505

Unabsorbed expenditure u/s 35AD

Specified businessNo AdjustmentYes
606

Long Term Capital Loss

With Long Term Capital GainNo AdjustmentYes
707

Short Term Capital Loss

Any Capital GainNo AdjustmentYes
808

Owning and Maintaining Race Horse

Income from such activityNo AdjustmentYes
909

Other loss under the head Income from Other Sources

With any income under the same headWith any income under other headNo

No loss can be set off against winning from lotteries, crossword puzzles, races, card games, gambling or betting, etc. [Sec. 58(4) & 115BB]

Wherever reference is given for unabsorbed depreciation, it includes reference to unabsorbed capital expenditure on scientific research and unabsorbed capital expenditure on promotion of family planning among employees

Carry Forward of Loss

In case where the income of an assessment year is insufficient to set off the losses of the year then such losses (which could not be set off) can be carried forward to subsequent assessment year(s) for set off against income of such subsequent year(s). However, all losses cannot be carried forward, e.g. losses under the head ‘Income from other sources’ (other than loss from ‘Activity of owning and maintaining race-horses’) cannot be carried forward. Following rules is applicable for carry forward and set off of loss in susequent assessment years:

Also Read  Rate of Income Tax for A.Y. 2018-19