1. SET OFF & CARRY FORWARD OF LOSSES
Lecture Notes

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
Business B
Business C (120000)
Net Result
House Property X
House Property Y (40000)
Net Result

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
House Property (30000)
Net Result

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. 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.

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
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

17. 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

18. THANK YOU