SET OFF AND CARRY FORWARD OF LOSS UNDER THE INCOME-TAX ACT

Loss from exempted Sources of Income cannot be adjusted towards taxable Income

 If income from a selected source is exempt from tax, then loss from such source can not be set off against every other earnings that is chargeable to tax.

 E.g., Agricultural earnings is exempt from tax, hence, if the taxpayer incurs loss from agricultural business, then such loss can not be adjusted towards some other taxable income.

 Meaning of intra-head adjustment

 If in any year the taxpayer has incurred loss from any source Under a specific head of income, then he's allowed to adjust such loss against income from another supply falling Under the equal head.

 The process of adjustment of loss from a supply under a selected head of income against earnings from different source under the same head of earnings is called intra-head adjustment,

 e.g. Adjustment of loss from Business A towards benefit from Business B.

 Restriction to be stored in mind at the same time as making intra-head adjustment of loss

 Following restrictions must be stored in mind before making intra-head adjustment of loss:

Loss from speculative Business can not be set off in opposition to any earnings other than income from speculative business. but, non-speculative business loss may be Set off towards income from speculative business.
 

2) Long-Term capital loss can not be adjusted against any income other than earnings from Long Term capital gain. however, short-time period capital loss can be set off towards long-term or short-term capital advantage.

3) No loss may be Set Off in opposition to earnings from winnings from lotteries, crossword puzzles, race which include horse race, card sport, and every other sport of any kind or from gambling or betting of any shape or nature.

4) Loss from the business of owning and retaining race horses can't be activate towards any income other than income from the commercial business of owning and preserving race horses.

5) Loss from commercial business precise under section 35AD cannot be set off in opposition to any different income except income from distinct commercial business (section 35AD is relevant in recognize of sure designated corporations like putting in place a cold chain facility,

putting in place and working warehousing facility for storage of agricultural produce, growing and constructing a housing tasks, and so forth.).

 
Meaning of inter-head adjustment
 
After making intra-head adjustment (if any) the next step is to make inter-head adjustment. If in any Year, the taxpayer has incurred loss Under one head of earnings and is having earnings underheads different head of earnings, then he can alter the loss from one head

against income from other head,

 
E.g., Loss under the head of house property to be adjusted against salary income.

 
Restrictions to be saved in mind while making inter-head adjustment of loss
 
Following regulations must be kept in thoughts before making inter-head adjustment:
 
1) before making inter-head adjustment, the taxpayer has to first make intra-head adjustment.
 
2) Loss from speculative business cannot be prompt towards any other income. however, non-speculative business loss may be set off in opposition to income from speculative business.

3) Loss under head “Capital gains” can not be prompt towards income underheads other heads of earnings.
 
4) No loss can be prompt in opposition to income from winnings from lotteries, crossword puzzles, race which includes horse race, card sport, and some other game of any type or from playing or making a bet of any shape or nature.

5) Loss from the business of owning and keeping race horses cannot be prompt in opposition to some other income.
 
6) Loss from business certain below phase 35AD cannot be activate towards any other income (phase 35AD is relevant in respect of certain exact businesses like setting up a cold chain facility, putting in and operating warehousing facility for storage of agricultural produce, growing and constructing housing projects, and many others.)

7) Loss from business and career cannot be Set Off in opposition to income chargeable to tax Under the top “Salaries”.
 
8) With impact from the assessment year 2018-19, loss below the pinnacle “house property” shall be allowed to be set-off towards every other head of income most effective to the quantity of Rs. 2,00,000 for any evaluation Year.
 
9) but, unabsorbed loss will be allowed to be carried ahead for set-off in subsequent years as in step with the existing provisions of section 71B. (Provisions relating to bring ahead of loss from house property is mentioned later.)

 
Carry forward of unadjusted loss for adjustment in next year
 
often it can manifest that after making intra-head and inter-head changes, nonetheless the loss remains unadjusted. Such unadjusted loss can be carried ahead to next year for adjustment in opposition to next year(s)’ earnings. Separate provisions had been framed below the earnings-tax regulation for convey ahead of loss Under one-of-a-kind heads of earnings.

Provisions underheads the earnings -tax regulation in relation to hold forward and set off of business loss other than loss from speculative business
 
If lack of any business/profession (apart from speculative business) can not be completely adjusted inside the 12 months in which it's miles incurred, then the unadjusted loss can be carried forward for making adjustment in the subsequent 12 months. within the next Year(s) such loss can be adjusted best in opposition to earnings charged to tax underheads the pinnacle “earnings and gains of commercial business or career”

Loss Under the Heads “Income and gains of Business or profession” may be carried forward only if the return of earnings/lack of the year wherein loss is incurred is supplied on or before the due date of furnishing the go back, as prescribed below segment 139(1).
 
Such loss can be carried forward for eight years straight away succeeding the Year in which the loss is incurred.
 
Above provisions are not applicable in case of unabsorbed depreciation (provisions referring to unabsorbed depreciation are mentioned later)

Loss from business exact underheads segment 35AD cannot be activate in opposition to any other income except income from precise commercial business (segment 35AD is applicable in respect of

certain specified organizations like setting up a chilly chain facility, putting in place and running warehousing facility for garage of agricultural produce, growing and building a housing tasks, etc.).

Such loss can be carried forward for adjustment towards income

from targeted business for any wide variety of years.

Loss from business specified under 35AD can be carried ahead handiest if the return of income/loss of the 12 months in which

loss is incurred is supplied on or earlier than the due date of furnishing the go back as prescribed under section 139(1).
 
Loss from the business of proudly owning and keeping race horses can't be prompt in opposition to any income other than income from the business of proudly owning and maintaining race horses.

Such loss may be carried ahead only for a period of four years.

If loss of any speculative commercial business can't be absolutely adjusted inside the 12 months wherein it's miles incurred, then the unadjusted loss may be carried forward for making adjustment in the next Year. within the subsequent year(s) such loss can be adjusted only against earnings from speculative business (can be equal or some other speculative commercial business).

Loss from speculative commercial business may be carried forward handiest if the return of earnings/loss of the Year wherein loss is incurred is furnished on or earlier than the due date of furnishing the return, as prescribed underheads section 139(1).
 
Such loss may be carried forward for four years without delay succeeding the Year wherein the loss is incurred. Above provisions aren't applicable in case of unabsorbed depreciation of speculative business (provisions referring to unabsorbed depreciation are mentioned later).

Provisions under the Income -tax Law in relation to carry forward and set off of house property loss

If loss Under the top “earnings from house Property” can't be fully adjusted in the 12 months in which such loss is incurred, then unadjusted loss may be carried ahead to subsequent year.

within the subsequent years(s) such loss can be adjusted best in opposition to income chargeable to tax Under the head “income from House Property belongings”.

Such loss can be carried forward for 8 years without delay succeeding the Year in which the loss is incurred.
 
Loss below the top “income from house Property” can be carried forward despite the fact that the go back of income/lack of the Year wherein loss is incurred is not provided on or before the due date of furnishing the return, as prescribed underheads phase 139(1).

Provisions under the Income -tax law in relation to carry forward and set off of capital loss

If loss below the pinnacle “Capital gains” incurred all through a Year can not be adjusted inside the equal 12 months, then unadjusted capital loss can be carried forward to next 12 months.

within the subsequent 12 months(s), such loss may be adjusted only in opposition to income chargeable to tax Under the pinnacle Capital income”, however, long-time period capital loss can be adjusted only against long-term capital income. brief-time period capital loss can be adjusted against long-term capital income in addition to quick-time period capital gains.

Such loss may be carried ahead for eight years straight away succeeding the 12 months in which the loss is incurred.

Such loss can be can carried forward handiest if the go back of income/lack of the Year in which loss is incurred is furnished on or earlier than the due date of furnishing the go back, as prescribed underheads segment 139(1).

Meaning of unabsorbed depreciation, unabsorbed capital expenditure on scientific research and unabsorbed capital expenditure on promoting family planning amongst the employees

apart from several different deductions, whilst computing earnings chargeable to tax Under the head “earnings and income of business or profession” a person is authorized to say deduction on account for depreciation, capital expenditure incurred by using him on scientific research and capital expenditure incurred via a organisation for promoting own family planning among its employees.

If the income of the Year wherein those charges are incurred falls brief of those expenses, then the unabsorbed costs can be carried ahead to subsequent Year inside the shape of unabsorbed depreciation or unabsorbed capital expenditure on scientific studies or unabsorbed capital expenditure on selling circle of relatives making plans amongst the employees.