SET OFF & CARRY FORWARD OF LOSSES
Lecture Notes
1
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
2
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
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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
Net Result
100000
70000
(120000)
50000
House Property X 75000
House Property Y (40000)
Net Result
35000
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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.
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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
80000
(30000)
Net Result
50000
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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
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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.
8
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.
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Exceptions :
Contract in respect of •Raw material or merchandise
•Stocks and shares by a
dealer or investor
Guard against
price fluctuation
•Member of forward market or a
stock exchange in the course of
jobbing or arbitrage
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.
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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
11
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
12
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
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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



ExceptionsAmalgamation of Companies
Demerger
Conversion of a proprietary concern/firm
into company
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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
15
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
16
CARRY FORWARD & SET OFF OF
CAPITAL LOSS (Sec 74)
Nature of Loss No. of
Set off Against
Years
A) Short term
8
Any income under the head
capital Loss
“capital Gains”
B) Long term
8
Long term capital Gain
capital Loss

Return of loss should be submitted in time
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THANK YOU
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