Presented By: Madhu Preety Kunal Sandip Kavya

 Income under the Income Tax Act is taxable under five heads:  Income from salaries  Income from house property  Income from business or profession  Income from capital gains  Income from other sources  It is possible for an individual to have income under more than one head.

Set-off means the process of reducing one’s income using losses under other heads or same head of income.

 Inter-source adjustment  Set-off loss from same head of income.  Inter ‑ head adjustments  If the loss is still existing, loss can be set-off from other heads of income (subject to certain restrictions).  Carry forward of losses  If loss still persists, the same can be carried forward to the subsequent assessment years

If the net result for any assessment year, in respect of any source under any head of income, is a loss, the assesse is entitled to have the amount of such loss set off against his income from any other source under head of income for the same assessment year.

X has 2 Businesses – A & B Profit From Business ARs Loss From Business BRs Net Taxable IncomeRs The Loss of Rs can be set off with his Profit of Rs Therefore the amount taxable under the head Profit & Gains from Business will be (50000 – 20000) Rs

 Loss from speculative business can be set-off only against gain from speculative business and not any other business income.  Loss from the activity of owning and maintaining race horses can be set-off only against gain arising from the activity of owning and maintaining race horses and not any other income.  Long term capital loss can be set-off against long term capital gains and not short term capital gains.

Where the net result of computation made for any assessment year in respect of any head of income is a loss, the same can be set off against the income from other heads.

X has two non speculative businesses A & B. Besides he has income from house property. Profit From Business ARs Loss From Business BRs Income from House propertyRs Net Taxable IncomeRs The Net Loss from both businesses of Rs ( ) can be set off with House Property income of Rs Therefore the net income taxable is Rs

 Speculation Loss – Cannot be set off against any other head.  Capital Loss - Cannot be set off against any other head except ‘Capital Gains’.  Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head.  Business loss cannot be set off with Salary.  Loss cannot be set off against winnings from lotteries, crossword puzzles etc.  Loss from purchase of securities.

If still the losses cannot be set-off fully through inter head adjustment, they can be carried forward to the next years. However, the loss so carried forward can be set-off only against same head of income, i.e. the benefit of “inter-source’ adjustment is lost.

 Loss under the head “Income from House Property”.  Loss under the head “Profits and Gains from Business or Profession”.  Loss under the head “Capital Gains”.  Loss from the activity of owning and maintaining race horses.

 Loss can be set off only against income form House Property.  Losses can be carried forward by the person who incurred the loss.  Loss can be carried forward for 8 years.  Return of loss should be submitted in time.

 Loss can be set off only against business income.  Losses can be carried forward by the person who incurred the loss.  Loss can be carried forward for 8 years.  Return of loss should be submitted in time.  Continuity of business not necessary.  Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses.

Speculative transaction means a 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.

 A contract in respect of raw materials or merchandise entered into by a person in the course of his manufacturing or merchanting business to guard against loss through future price fluctuations in respect of his contracts for actual delivery of goods manufactured by him or merchandise sold by him; or  A contract in respect of stocks and shares entered into by a dealer or investor therein to guard against loss in his holdings of stocks and shares through price fluctuations; or

 A contract entered into by a member of a forward market or a stock exchange in the course of any transaction in the nature of jobbing or arbitrage to guard against loss which may arise in the ordinary course of his business as such member; shall not be deemed to be a speculative transaction;

 Speculative loss can be set off only against speculative income.  Can be carried forward for 4 years.  Continuity of Business is not necessary.  Return of Loss should be submitted in time.

 Its the amount of depreciation which the assesse couldn't claim as expenditure in his profit and loss account due to lack of sufficient credit in the credit side of P&L account or other expenses.  Such loss in P&L account due to the excess depreciation is called unabsorbed depreciation.  such depreciation can be set off against any head of income in the current year and the balance not setoff can be carried forward for any number of years.

 Claim deduction of current year depreciation from the business to which it relates.  Deficiency in the above can be setoff against profits and gains of any other business of the assesse.  Deficiency in the above can be set off against any other head of income of current previous year.  Deficiency in the above is "unabsorbed depreciation" for the current previous year. the unabsorbed depreciation has same treatment as business loss which is carried forward - for accounting purpose.

 Long term capital loss can be set off only against long term capital gains.  Short term can be set off against short term or long term capital gains.  Loss can be carried forward for 8 years.  Return of loss should be submitted in time.

 Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses.  Loss can be carried forward for four assessment years immediately succeeding the assessment year in which the loss was first computed.  Such loss cannot be carried forward unless return is filed within the time.

Nature of lossNumber of yearsTo be set-off against Loss from house property8Income from house property Business loss (non- speculative) 8Income from business/profession (non speculative) Speculative business loss4Income from speculative business Loss from activity of owning and maintaining of race horses 4Loss from activity of owning and maintaining of race horses Short term capital loss8Short term or Long term capital gains Long term capital loss8Long term capital gains Unabsorbed Depreciation, Scientific Research & Family Planning Expenditure No LimitANY INCOME