-14 — SET-OFF AND CARRY FORWARD OF LOSSES —$$___—_———___/ SET-OFF OF LOSSES Set-off of losses means setting-ff losses against income ofthe same year. The provg, regarding set-off of losses are as under : | (1) Set-off under the same head : If the net result for any assessment year in respect of, source falling under any head of income is a loss, the assessee shall be entitled to have amount of such loss set-off against the income from any other source under the same head, is also called inter-source adjustment. (Sec. However, the following are the exceptions to the above general rule : (a) Loss from speculation business cannot be set-off against income from other busines, profession. This loss can be set-offonly against the income from another speculation busin, (b) Loss of specified business (See Sec. 35AD Profits and Gains of Business or Professig cannot be set-off against income from other business. This loss can be set-off o, against income from other specified business. (©) Long-term capital loss cannot be set-off against short-term capital gain. This loss g be set-off only against long-term capital gain. (a) Loss from the activity of owning and maintaining race horses shall be set-off. ‘agair income from owning and maintaining race horses only and not against any otf income under the head other sources. (e) Losses of lottery, crossword puzzles, gambling, card games or betting etc. cannot set-off against such income or any other income. Further, no loss under any head ¢ be set-off against such incomes. () Loss from an exempted source of income cannot be set-off against any taxable incor (2) Set-off against income under other heads : If after setting-off a loss under the same hi of income there still remains some loss, the remaining loss shail be set-off against his inco under any other head. (Sec. 71 Restriction regarding set off of loss under the head “Income from house property” agai any other head of income (w.e,f. the Assessment Year 2018-19) (See. 713 Set offofloss under the head “Income from house property” against any other head ofinct shall be restricted to two lakh rupees for any assessment year. However, the unabsorbed | can be carried forward for eight subsequent years for set-off under the head income from ho Property. However, the following losses cannot be set-off against income under other heads : (a) Speculation losses; (aa) Loss from specified business; (b) Loss from the activity of owt and maintaining race horse; (c) Loss under the head ‘Capital Gains’. (4) Loss under the h ‘Business or Profession’ cannot be set-off against income under the head ‘Salaries’; (e) Any is not allowed to be set-off against winning from races, lotteries, etc. _ (8) Loss from Business or Profession : Any loss from business (other than specula business) or profession can be set-off against any other income falling under the same h (including speculation income) as well as under any other head of income except ‘Salaries’ Scanned with CamScannerjorbed depreciation is not treated as a1 = ae nth ed depreciation the fs 0 loss from one (Ba IRs tnt tome eet hehe business ar green fa Foe pti mthieietuceke ti nae : cl eon in respect oF epecuitl mother spocttation heat eka rata sist port of non-spe ration bo newb, carrie ey toe a set-off only against (oe Prom Ay, Mer Sources" con, however, be set-off aga profes Or ed seagen sol Lamees from on be net-off ngainat the profite of ee see ae {See THAN oss of specified bu ines : Any losi r A) ree csiness only. ny loss of a specified business can be set-off the activity of 1 posses from th ty of otening and maintaini shgand maintaining ace fporees in any assanement ye ace hore arent fen en Ring race horees, and not against nny other i set-off only at AB fog) capita’ Lowees ) Short-term : Such losses can be set-off epinat Sec, TANT gal grins OF jong term capital gains only. e set-off against any other shore term ott term : Long-term capital | ip) Lane pital loss can be set-off against i (Losses of laters crossword puzzles, gambling, cand vane oF bette care Thee ine sate st against any income. 1 betting, ete : These losses é ra (8) Loss of A co fre Body of Individuals or Firm : The loss of A.O.P. oF 0k, or 0 ned ice not be set-off intra headwise and inter headwise as pet the ot jons Pore are not Meee be apportioned among the members/partners and the ers Pa ‘are not entitled to set-off their share of loss from their personal incomes. ye Set-off of Losses : At A Glance Loss i a [7 Toss from house property (@) Income from any other house property (b) Any other ‘head of income up to = 2,00,000 (a) Income from any’ other business or profession (b) Any other ‘head of income except salaries g, | Loss from speculation | Income from speculation g4.| Loss from specified business Income from any other specified business 4, | Short-term capital loss (a) Short-term capital gains (b) Long-term capital gains Long-term capital gains Tneome from the activity of owning and maintain- ing race horses ‘Cannot be set-off against any income. 4, Loss from business or profession 5. | Long-term capital loss | Loss from the activity of owning and main- | taining race horses 7, | Loss of lottery, crossword puzzles, gambling, card games or betting, cle. Nore: No loss can be set-off against “winnings from races lotteries, eb. CARRY-FORWARD AND SET-OFF OF LOSSES Ifit is not possible to set-off the Tosse® during the sam 0 cccurred, s0 much of the loss as has ot been so set-off out of the following losses can be cat Maurits for being set-off against his income in the succeeding years, been determined in pursuance of a return filed by the assessee within 199(1) and it is the same assessee who sustained the loss + (1) Loss under the head ‘Income from House Property’ a (2) Loss of non-speculation ‘business or profession. (@) Loss of speculation business. Scanned with CamScannerINCOME TAX : “See seme -term capital loss or Long-term lo (5) Loss from the et ty ofowning and maintaining race horses Any loss other than mentioned nbove cannot be carried forward and set-ofFn Steen (1) Lous from House Property : The unabsorbed loss under the head ‘Inco ng, wrePerty’ shall be carried forward and set-ofTin subsequent assessment years Up to fm Of eight assessment Years against income from house property. & (2) Carry.forward and. set-off of non-speculation business losses : If for ANY Assen, {henet result under the head Profiteand Gains of Business or Profess 8 ass to gp {Rot being a loss of speculation busines), so much ofthe loss as has not ben 50 set on farried forward to the following assessment year and it shall be set-off against the ings thas fits head ‘Profits and Gains of Business or Profession’ I the lo cannot be wholly sq following year, it shall be carried forward for a maximum period of eight Assess Mn Immediately sueceeding the assessment year for which the loss was first computay™™t dn! See, the business or profession has been discontinued loss can be carried forward ana against profits and gains of business or profession. My Other important points regarding carry-forward of business losses : () Losses of discontinued business of an industrial undertaking after re-establish revival : If on account of natural calamities, like flood, cyclone, earthquake, riot, firg met action ete. the business of the industrial undertaking is discontinued but revived Within thereafter, the unabsorbed losses of the undertaking shall be carried forward and setoffap. profit of the revived business or any other business up to a maximum period of 8 years Srey from the year in which the business is re-started. (ii) Treatment of Losses after succession takes place by inheritance : The loss incurred ie father in the course of carrying on his business can be carried forward and set-off by hig he succeeds to the business of his father on account of his death. (3) Losses of speeulation business : If for any assessment year any loss computed in of speculation business has not been wholly set-off in the same assessment year against prog gains of any other speculation business, so much of the loss as is not so set-off shall be carried yn © {0 the following assessment year and it shall be set-off against the profits and gains if . speculation business, carried on by him. If the loss cannot be wholly set-off in the following shall be carried forward for a maximum period of four assessment years immediately s the assessment year for which the loss was first computed. (SA) Carry-forward and set-off of loss of specified business : The brought specified business shall be set-off against the profits and gains, if any, of any specified busins carried on by the assessee. The loss can be carried forward and set-off till it is fully set-of. (4) Carry-forward and set-off of Capital Losses : (a) Short-term Capital Loss : Shortt: capital loss which cannot be wholly set-offin the same assessment year against income wz of eight assessment years immediately succeeding the assessment year for which a ari [Secs, 74(1) ard’ (b) Long-term Capital Loss : The long-term capital loss which cannot be wholly se the same assessment year against long-term capital gain shall be carried forward following assessment year to be set-off against long-term capital gain if any. This los carried forward for a maximum period of eight assessment years immediately su assessment year for which the loss was first computed. | Scanned with CamScannervom owning and mat poe frome ot-ofl the oss i | Spr from the same jaining race *£ N ‘urred by Meee Owners of race horses are! to ‘on the maintenance of race horses ‘against 4 from the activity of owning and maintain Os i a subsequent year), ‘This ty pies IP Mossment year when oss can he care ini the sr wh - thelaa sue acre forward fr four Sasesament Years mutated non-speculative bu computed, & Gott acum Ta company : Business tore and dee, TAREKD tn aac id unabsorbed depreciation in eases of 7 ra nnn ial undertaking or a shi {See. T2ACN % @ ship or a hotel amalgamates with another \ ae on akin company amalgamates with a spied wo y more public sector specified bank, o1 one © c company or es rT (iargmalgamates with one or npany or companies engaged in the business of operation amis the accumulated oss and th c rector company ar companies engaged °° i Mi be deemed to be the loss Ne unabsorbed depreciation of the amalgamating a0 Sr in which the amalgamati or depreciation of the ‘amalgamated company of the y Fon was' effected ‘Thus, Une amalgamated company i oar Jarry-forward and set- led : set-off the loss and unabsorbed depreciation of the amalgamat- Sco tions fer set-off: omalgamating compa e Tt has been engaged, pay Ruane ee ene conditions + J. preciation remains unabsorbed, aalia ine ihe accumulated loss occurred OF (py Tthas held continuously as on seer eelsemedon’ Tones value of fixed assets held by it eo sosleneata atleast three-fourth ofthe hs sa company ‘aif the felloving ¢ prior to othe date of amalgamation. ‘a) The amalgamated compan: . Bigcemgeacesneymt aetn aaa es effective ‘date of amalgamation. amalgamation, for five (p) The amalgamated company contim : Jeast five years from a oon ofthe amalgamated comeany (p Accumulated non-speculative business losses and unabsorbed dep ; Where there has ‘been a demerger of an undertaking, the accumulated los: spabsorbed depreciation transferred by the demerged company to the resulting company shall allowed to be carried forward and set-off in the hands of the resulting company. {Sec. TAQ) ‘The resulting company can carry-forward and set-off such loss for the palance period for shich it can. be carried forward and set-off ‘by the demerged company if there is no demerger. (8) Accumulated non- eculative business losses and unabsorbed depreciation in cases of secession : Where @ firm is succeeded by @ ‘company/a proprietary concern is, succeeded by & tenpany, which fulfils the prescribed conditions, the accumulated loss and ‘unabsor! depreciation of predecessor firm/proprietary concern shall be deemed to be the loss ion of the successor company for the previous year in which business lating to set-off and. carry-forward. Joss tnabsorbed depreciati reorganisation was effected. The provisions of the Act rel {Sec. T2A(6)) ind unabsorbed depreciation shall apply accordingly: » ‘The above provisions shall also apply ina case where a private company or unlisted public company is converted into & jimited liability partnership. ele: For earry-forward and set-off of ‘unabsorbed depreciation see the chapter on Depreciation’. (9) Accumulated non-speculative business losses and nmabsorbed depreciation in cave of the amalgamation of a banking company ° ‘Where a banking company amalgamates with any ther banking institution under a scheme sanctioned and ‘brought into force by the Central Government, the accumulated non-speculative pusiness loss and the unabsorbed depreciation ‘fsuch banking company shall be deemed to ‘be the loss oF ‘unabsorbed depreciation ‘of such - banking institution for the previous year in which the scheme of amalgamation ce Lan ‘ato force. @ reciation in case of s and the a Scanned with CamScannerNo as INCOWETAX Note) Deg ~ ea (2) pation of ngnmatin given in Se. 210) sal nt sop in thie (10) Carry fora BX" in Sec. T2A shall not apply inthis CR sorbed depen Preard and setoff of accumulated nore opeet ce ausiness toy, Purposes oreo in case of business reorde malsation of Ie CO-OPCTating bang 7 Section business reorganisation includes : ‘ a a Amalzamation ofa co-operative bank with another co-operative bank, Is. materger of a co-operative bank with another co-operative bank, y depreciate ns relating to set-offof accumulated non-speculative bu eS 1088 any Unabsorbey ae the same as discussed under “Accumulated non-speculative jy,: ms a bed depreciation in case of amalgamation and demerger”— except the follow’ laa. he Set-off shall be allowed to the successor co-operative bank as ifthe am, g ‘Ad not taken place, P " (®) The period commencing from the beginning of the previous year and eng date immediately preceding the date of business reorganisation, and 2 commencing from the date of such business reorganisation and ending” gs Previous year shall be deemed to be two different previous years for iy. wf . Set-off and carry-forward of loss and depreciation allowance. Pape * Treatment of Carried Forward Losses of certain Assessees " ig iol) Lotees of the firm : The share of loss from a firm cannot be Set-ofF by a pq his in its | Paring disown However, the firm can carry-forward and setoff its losses as por tn meek in th LOs8e8 Of a firm in the case of a change in its constitution : If a change hag in the constitution of a firm, the firm eannot earry-forward the share of loss of the deceased partner, ty, (3) (a) Losses of closely-held companies : Such a company shall be allowed tg cary and set-off its losses of earlier years against the income of the previous Year proyig. shares carrying at least 51% of the voting power are held by the same persons at thea’ Previous year as they were held at the end of the year when loss was incurred, ay, (b) Losses of an eligible Startup Company : A closely held company, being a st bi LAC) the oss incurred in any year prior tothe previous year shall be carried onc? off against the income of the previous year, if all the shareholders of such company whe shares carrying voting power on the last day of the year or years in which the loss wc, inal () continue to hold shares on the last day of such Previous Year; and in whey ch Hoss has been incurred during the period of seven years beginning from he. in which such company is incorporated. m) (Loss incurred by an eligible start-up shall be allowed to be carried forward . i | > and wg] against the income of previous year if it satisfies condition mentioned in 3(a) or 31D), ce! sessment Year 2020-21)] | Exceptions : (a) Where a change in the said voting power takes place in a previous ye ts the death sta shareholder or on account of transfer by way of gift to any relative di arehdlder making such gift. (b) Where a change in the shareholding, of an Indian company which is subsii foreign company, takes place as a result of amalgamation or demerger of a foreign cap subject to the condition that 51% of the shareholders of the amalgamating or demergel fi company continue to remain the shareholders of the amalgamated or resulting foreign ons (c) Where a change in shareholding takes place in a previous year pursuant to a resolutia approved under the Insolvency and Bankruptcy Code, 2016, after being heard to the jurist Principal Commissioner or Commissioner, ie Ifthereisa change in shareholders, the company is not entitled to carry-forwardatii4 the losses; but unabsorbed depreciation, unabsorbed capital expenditure on scientific and family planning are deductible. (CIT. vs. Kalpaka Enterprises (P.) Ltd. (1986) 157 17R 6 F Scanned with CamScanner_.SETOFF f Lown : Unies Canny FORWARD OF LOSSES 8 th a (1) and ote emeanee fils a. rts lew the Ket of cad a tne Bo a nine Teataift the loss, However, thin condition down nk araty tea ay OH f unabsorbed ¢ nse Proporty”, lition does not apply Inease of | cortfar expenditure on ace pital expenditure on sclentifie ee. 60) ais apenvent year Because of nn varch and family planning while and family plan- |e tion: TCO oa ee agg hich cannes be sinorbed | ie or gotott jard like unabsorbed or jasossee is entitled to claim depreci a r yfan *iness losses, th of allowinecre! te, pusiness he sequence of g nial expenditure, a ™ : ‘a burnt? jopreiation allowing deduction will be ax under eMawcarted Capital expenditure on scientific researc 6) Cred forward business Loss resonreh ond family planning; fe inabsorbed depreciation; " W Unabsor! capital copentes on scientific research and family plannii rry-Forward and Set-off of Losses : At AGlanoe = from house property the following eight i | ‘income from house | ey . property. | ox from business oF profession In the following eight years, income from business oF i | oes from speculation Peike allowing four years, income from speculat . f . i speculation. | Loss from specified business | Income a the specified busine, No time limit is, : prescribed for carry-forward and set-off 4, | Short-term capital loss Tn the following eight years : (a) Short-term capital gains (b) Long-term capital gait g,| longterm capital Loss ar eer Tn the following eight years, long-term capital gains. Th the following four years, income from owning and ‘maintaining race horses. § | Loss from the ‘activity ofowning and main- taining race horses f tnustration 1 Mr. B. Rathi submits the following information relevant for the ‘Assessment Year 2020-21: Income Loss z z quxable Income from Salary 242,000 = Income and Loss from House Property = House A 1,15,000 - House B — — 3,30,000 Profit and Loss from Business : Business A 2,28,000 ais isn Business B 41000 pn: Business C (Speculative) nO0U: 23,000 Business D (Speculative) " Capital Gains and Loss : 6,000 a Short-term Capital Gains ade 28,000 Short-term Capital Loss 32,500 _ Long-term Capital Gains Income and Loss from Other Sources ? 13,000 _ Income from Card Games _ 7,010 Loss from Card Games = 6,000 Loss on Maintenance of Race Horses 4,000 — Interest on Securities Year 2020-21. ent ee Me a tn Scanned with CamScanner