SET OFF & CARRY FORWARD OF LOSSES Lecture Notes

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

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

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 Business B 70000 Business C (120000) Net Result 50000 House Property X 75000 House Property Y (40000) Net Result 35000

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.

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

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

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.

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.

Speculative business in case of a company: Exceptions : Contract in respect of - Raw material or merchandise Stocks and shares by a dealer or investor Member of forward market or a stock exchange in the course of jobbing or arbitrage Guard against price fluctuation 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.

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

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

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

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

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

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

CARRY FORWARD & SET OFF OF CAPITAL LOSS (Sec 74) Nature of Loss No. of Years Set off Against A) Short term capital Loss 8 Any income under the head “capital Gains” B) Long term Long term capital Gain Return of loss should be submitted in time

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