AGGREGATION OF INCOME

Normally every person pays tax on his own income but in

following cases income of spouse, minor child, son`s wife or a third
person is included in the income of an individual. these cases are:
1. When there is transfer of income without transfer of
asset:- such incomes remains transferor`s income.
2. When there is revocable transfer of asset:
Income from such asset remains transferor`s income. Transfer
is revocable if the transferor reserves the right to get back the
asset at any time or transfers the asset at any time.
3. Income of spouse or son`s wife:
a) Any salary, commission or remuneration received by spouse
from a Concern in which individual has substantial interest,
shall be added in the income of such individual. Such salary,
commission or remuneration will not be clubbed if it is
earned by the spouse with her/his personal qualifications,
skills or experience. A person is said to have substantial
interest if he owns 20% or more share in such concern.
b) Income from an asset transferred to spouse without
adequate consideration, remains transferor`s income. The
relationship of husband and wife must exist on the date of
transfer.
c) In case asset is transferred to son`s wife without adequate
consideration, income remains transferor`s income.
d) In case asset is transferred to a third person but benefit from
such asset is still accruing to spouse, son`s wife or minor
child, income from such asset remains transferor`s income.
4. Income of minor child:
Every income of minor child from whatsoever source it
may be shall be added in the income of that parent whose
other income is higher. Income of a minor child, who is
physically handicapped or mentally retarded shall not be
clubbed.
Any income earned by a minor child with his own manual
skill, knowledge, qualification or art will also not be clubbed. A
parent with whom, income of a minor child is clubbed can claim
exemption of Rs. 1,500 per child or income so clubbed
whichever is less.
5. In case a self acquired asset is converted by an individual into
common pool of HUF, its income remains transferor`s income.
SET OFF AND CARRY FORWARD OF LOSSES
Explain the provisions of Income Tax Act 1961 regarding set
off and carry forward of losses?
Tax is levied on assesse`s total income. To calculate Total
Income, loss under any source (or) Head of Income is to be adjusted.
Section 70-79 of Income Tax Act deals with various provisions
regarding set off and carry forward of losses.
SET OFF LOSSES:
INTER – SOURCE SET OFF LOSSES: (WITH IN THE HEAD)
Losses from one source of income can be set off from income of
another source within the same head of income.
For example: An assessee is running two business A and B.
There is a profit of Rs. 2,00,000 in business A, where as there is a
loss of Rs. 1,00,000 in business B. To find out income under the head
business, an assessee is required to set off loss of business B out of
the profit of business A.
Exemptions:
Long-Term Capital Loss:
Long – Term Capital Loss from the transfer of capital asset shall
be allowed to be set off only out of the Long Term Capital Gain from
the transfer of another capital asset. However, Short Term Capital
Loss shall be allowed to be adjusted out of Long Term as well as
Short Term Capital Gain.
Loss from running and maintenance of Horse races:
Loss from running and maintenance of horse race shall be set
off only out of the income of such horse race. This means that loss
from the activity of owning and maintaining race horses losses can
not be set off against any other income.
Loss from an Exempted source of Income:
If a person has loss from a source of income which is exempt
under any provision of this act. Such loss cannot be set off against
the income of any other source which is taxable.
Speculation Loss:
It can be set off only from speculation gain and
not from any other income but loss from any other source/head can
be set off from speculation gain if any.
Inter Head set off (out side Head):
A loss which could not be set off with in the same Head of
income shall be allowed to be set off out of income of any other
Head in the same assessment year but subject to certain exceptions.
Speculation Loss:
It can be set off only from speculation gain and not from any
other Head of Income.
Expenses on maintenance of Horses for their purposes:
Loss from maintenance of Horses shall be set off only out of the
income from owning and maintenance of horses. These horses
cannot be set off against any other head of income.
Loss under the Head Capital Gains:
1. Short term capital loss can be set off from short term and
then from long term capital gain and not from any other
head of income.
2. Long term capital loss can be set off only from Long term
capital gain and not from any other Head of income.
3. Loss from any other head can be set off from Income under
the Head Capital gains.
Business loss not to be set off from salary:
Loss under the head “Profits and Gains of business (or)
profession” cannot be set off income under the head “Salary”.
No loss to be set off from casual income:
No loss can be set off from casual income, such as winning
from lotteries, races, card games, cross ward puzzles, etc.,
Loss from a source whose income is exempted:
If a person has loss from a source of income which is exempted
under any provision of this act, such loss cannot be set off out of
taxable income if any other head.
Carry Forward of Losses:
It means to take the loss of one previous year to succeeding
previous year (or) years and adjusting it.
Salary:
They can be no loss under the head salary to be carry forward.
House property:
With effect from assessment year 1999-2000 loss under the
head can be carried forward for 8 succeeding previous years to be
set off only out of income under the head “House Property” only.
Profits & Gains of Business (or) Profession:
a) Normal business loss can be carried forward for 8
succeeding previous years to be set off only out of income under the
head profits & gains.
 b) Speculation loss which remains unadjusted can be
carried forward to succeeding 4 previous years to be set off only
from speculation gains.
c)Un absorbed Depreciation:
When total depreciation is more than available profits, the
excess is called unabsorbed depreciation. It can be adjusted from
any other income( Including all heads of income) of the year.
Depreciation which remains unadjusted as either there is no
income in the relevant previous year, it can be carried forward till it
is fully adjusted from any income during the succeeding previous
year.
d) Unabsorbed Capital Expenditure on Scientific
Research: It is carried
forward in the same manner in the case of unabsorbed depreciation.
Order of performance:
1. Current depreciation.
2. Current capital expenditure on Scientific Research.
3. Current business loss.
4. Brought forward business loss(FIFO).
5. Brought forward unabsorbed depreciation.
6. Brought forward capital expenditure on Scientific Research.
Capital Gains:
a) Short-term capital loss can be carried forward for 8
succeeding previous years to be set off from first from short
term capital gain and then from long term capital gain.
b) Long term capital loss can be carried forward for 8
succeeding previous years to be set off only from long term
capital gain and not from any other income.
Other sources:
Loss due to maintenance of Horses for race purposes can be
carried forward for 4 succeeding previous years to be set off only
from similar type of income.
Incase a person is having securities as stock-in-trade and has
any balance forward loss under the head profits & gains, such loss
can be adjusted from Interest on securities.
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PROBLEMS
 1. A person submits following information:
P/Y 2013-14
P/Y 2014-15
Rs.
Rs.
Loss from self occupied house 60,000
45,000 Loss/income under the head
profits and gains (-)90,000 30,000
Income from salaries(computed) 65,000
1,23,000 How will be adjust his losses?
Ans: Rs. 78,000.
I. From the following particulars of F. Singh for the previous year
ending 31-3-2013, compute the income under each head,
and the taxable income with reasons and also explain the
problems of carry forward of such loss, that could not
absorbed:
(i) Loss from business [sole proprietor]
(-) 45,000
(ii) Loss from house property (-) 34,000
(iii) Capital gains:
(a) Short-term capital loss (-)
45,000
(b) Long-term capital gain
67,000
Ans: Nil .

II. The following are the particulars of income and loss of an

individual under different heads of income. Set-off losses in
the assessment year 2013-14 and find out the net result:

Rs.
Income from house property A 5,000
Loss from house property B (-) 18,000
Income from interest on securities 20,000
Loss from a cycle business (-) 20,000
Profit from speculation business
20,000
Loss from short-term capital asset (-) 6,000
Long-term capital loss (-) 25,000
Long-term capital gain (Investments)
21,000
Ans: Rs. 17,000.
III.From the following particulars of income of assesses, A,B and C,
how the capital losses shall be set-off and carry forward for
the previous year ending on 31-3-2015?
Rs.
A. Business income 15,000
Short-term capital loss 1,200
Long-term capital gain (shares) 7,200
Long-term capital gain on sale of jewellery 20,000
B. Business income 30,000
Short-term capital gain 40,000
C. Business income
60,000
Short-term capital gain 20,000
Long-term capital gain (land) 17,000
Carry forward loss (short-term capital assets) 50,000
Ans: Rs. 60,000.

IV. Mr. Yashwant submits the following information for the

financial year ending 31-3-2014. He desires that you should:
a) Compute the gross total income and b) ascertain the amount
of losses that can be carried forward:
1. He has two houses: Rs.
a) House No. I [Net annual value]
36,000
b) House No. II [current year loss]
(-)10,000
c) Brought forward loss of assessment year 2002-2004
Of 2nd house representing unadjusted interest on
borrowed capital 30,000
2. He has three proprietary business:
a) Textile business:
Discontinued from 31-10-2014 current year loss
25,000
Brought forward business loss of year 2010-11
80,000
b) Chemical business:
Discontinued from 1-3-2014 hence no profit/loss
NIL
Bad debts allowed in earlier years recovered during
this year 30,000
Carried forward business loss for the assessment
Year 2010-11 20,000
c) Leather business:
 Profit for the current year
90,000
3. Short-term capital gain
20,000
Long-term capital gain
15,000
Ans Rs.

V. From the following particulars, compute the gross total income

of Mr. A for the previous year 2014-15.
Income from House Property (computed)
36,000
Profit from business (before claiming following deductions
2,30,000
Current year`s expenditure on scientific research –
Amount given to a Notified Scientific Research Institution
40,000
Current year`s depreciation allowance
50,000
B/F unabsorbed business losses:
2001-02 40,000
2006-07 15,000
2010-11 20,000

B/F unabsorbed depreciation allowance:

2001-02 24,000
2006-07 20,000
2009-10 60,000
Interest on securities 50,000
Ans: Rs. 57,000.

VI. Mr. Atul, an Indian resident, furnishes the following

particulars of his income for the assessment year 2015-16.
You are required to deal with set-off and carry forward of
losses. Rs.
1. Income from securities (gross)
10,000
2. Income from residential house (computed)
5,000
3. Profits from Rayon business
25,000
4. Income from an agency business
2,000
5. Speculation income 2,000
 6. Short-term capital gain
4,000
7. Long-term capital gain
9,500
The carry forward items from the assessment year 2013-14
are:
1. Loss from Hosiery Business (discontinued in 2011-12)
4,000
2. Loss in agency business 3,000
3. Loss from Rayon business
3,000
4. Speculation loss 4,000
5. Short-term capital loss
6,000
6. Long-term capital loss [of previous year 2012-13]
6,500
Current year`s depreciation for Rayon business is Rs. 500.
Ans: Rs. 32,500.
VII. From the following particulars, determine the total income of
Mr. A.
Previous Year Previous
Year
2013-14 2014-
15
Rs. Rs.
House property income (computed)
20,000 20,000
Business Loss (before depreciation) -
80,000 90,000
Depreciation for current year 60,000
60,000
Income from other sources
10,000 10,000
Ans: Rs. Nil.

VIII. Compute the gross total income from particulars given

below: Rs.
i. House Property:
Loss from self-occupied house
(-) 30,000
 Income from let out house
16,000
ii. Profits and Gains:
Business loss
(-) 1,50,000
Share of loss from firm (B/F from A/Y 2011-12)
(-) 1,00,000
iii. Capital Gains:
Short-term Capital Loss
(-) 2,40,000
Long-term Capital Gain
(-) 4,00,000

Ans: NIL.

IX. Show the adjustment of following losses and incomes of an

individual for the previous year ending on 31-3-1015.
Rs.
a) Depreciation B/F from previous year 2005-06
1,00,000
b) Depreciation B/F from previous year 2008-09
1,60,000
c) Depreciation B/F from previous year 2010-11
2,00,000
d) Income under the head “Profits & Gains”
1,50,000
e) Income from other sources
3,20,000
Ans: Rs. 10,000.

X. Mr. Ram Patel submits the following information of his incomes

and losses for the year ending 31-3-2015.
Rs.
1. Salary income (computed)
24,000
2. Income from house property:
House A (income)
10,000
House B (loss)
40,000
House C (self-occupied) loss
28,000
3. Income from business:
 Cloth business (profit)
10,000
Hardware business (loss)
12,000
Speculation (profit)
12,000
Speculation (loss)
17,000
4. Capital gains:
Short-term (gain)
8,000
Short-term (loss)
24,000
Long-tern (gain)
8,000
5. Other sources:
Income from betting
12,000
Loss from card games
6,000
Income from card games
9,000
Interest on securities (gross)
8,000 Ans: Rs. 21,000.
The following are the particulars of income of an assessee for
the assessment year 2015-16.
Rs.
Gold speculation profit 40,000
Agency business loss 2,000
Profits from cloth business (Before charging 12,000
depreciation of Rs.20,000)
Profits in Hardware business 32,000
Income from house property 4,000

Following losses/allowable allowances are brought forward from

assessment year 2015-16.
Rs.
 Silver speculation loss 20,000
Agency business loss 12,000
Unabsorbed depreciation 4,000
Compute his total income for the assessment year 2015-16
indicating the manner of treatment of losses and allowances.
Ans: Rs. 54,000.
XI. Smt.Malathi, an individual, submits the following information
relevant for the assessment year 2015-16.
Rs.
Salary income computed (+)
42,000
Income from House Property
House A (+)
15,000
House B (-)
17,000
House C (-)
21,000
Profits and Gains of Business or Profession
Business A (+)
8,000
Business B (-)
10,000
Business C (speculative) (+)
11,000
Business D (speculative) (-)
23,000
Capital Gains
Short-term capital gains (+)
6,000
Short-Term Capital loss (-)
28,000
 Long-term Capital gains on sale of building (+)
12,500
Income from other sources
Income from card games (+)
8,000
Loss from Card games (-) 7,010
Loss on maintenance of race horse (-) 6,000
Interest on securities (+)
4,000
Determine the total income of Smt. Malathi for the assessment
year 2015-16. Ans: Rs. 29,000.
XII. Mr. Srihari furnishes the following particulars of his income
for the previous year 2014-15. Compute the Gross Total
Income of Srihari for the assessment year 2015-016.

Rs.
1 Income from salary (computed) 68,000
.
2 Income from house property:
.
Income from House I (+)
36,000
Loss from House II (-)
24,000
Loss form House III (-)
22,000
3 Profit from Business
.
Profit from Fancy Stores 60,000
Profit from Medical Shop 70,000
Profit from share business (speculative) 82,000
Loss from gold business (speculative) 94,000
 4 Long-term capital gain on sale of shares 22,000
.
5 Short-term Capital loss on sale of land 44,000
.
6 Income from Card games 22,000
.
7 Winnings from Lotteries 60,000
.
8 Income from horse races (Gross) 40,000
.
9 Loss form horse races in Gandipet 21,000
.
Ans: Rs. 3,10,000.