Taxation Exam > Taxation Notes > Fast Track Quick Revision Income Tax > Set off & Carry Forward of Losses (Section 70 to 80)
Set off & Carry Forward of Losses (Section 70 to 80) | Fast Track Quick Revision Income Tax - Taxation PDF Download
| S 70. Whether set off allowed within same head? |
S 71. Whether set off allowed with different head? |
S 71B to 74A Rules to carry forward & set off past year losses |
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| House Property Loss |
Yes | Yes | Section 71B. |
| • Brought forward HP loss can be set off only with HP. |
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| • It can be carried forward for 8 AY’s. |
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| • Section 80 is not applicable. It means even if return of loss is not filed or filed late loss can be carried forward & set off. |
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| Business loss |
Yes | Yes except salary. |
Section 72 |
| • Set off with both business income & speculation income. |
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| • Carry forward for 8AY. | |||
| • Section 80 applicable. It means if return of loss is not filed or filed late business loss cannot be carried forward. |
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| • Assessee who has incurred the loss can only set off that loss [6 exception] |
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| • Even if business is discontinued business loss can be set off. |
| Speculation loss (Same day sale & purchase i.e. without taking delivery) S 43(5) |
Yes | No | Section 73 |
| • Past year speculation loss can be set off only with speculation income. |
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| • Carry forward for 4AY. | |||
| • Section 80 applicable. It means if return of loss is not filed or filed late speculation loss cannot be carried forward. |
|||
| • Assessee who has incurred the loss can only set off that loss [exception not applicable] |
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| • Even if business is discontinued business loss can be set off. |
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| Loss under the head capital gain |
Yes LT can be set off only with LT. ST can be set off with both LT & ST. |
No | Section 74 |
| • LT can be set off only with LT. ST can be set off with both LT & ST. |
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| • Carry forward for 8AY. | |||
| • Section 80 applicable. It means if return of loss is not filed or filed late capital gain (loss) cannot be carried forward. |
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| Loss from activity of owning & maintaining race horses |
Yes | No | Section 74A |
| • Past year horse loss can be set off only with horse income |
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| • Carry forward for 4 AY. | |||
| • Section 80 applicable. It means if return of loss is not filed or filed late business loss cannot be carried forward. |
|||
| • Assessee who has incurred the loss can only set off that loss [exception not applicable] |
|||
| • If business is discontinued then loss cannot be set off. |
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| Loss from lotteries etc |
No | No | No |
| Note: No other loss can be set off against this income. Deduction u/s 57 not available. Deduction u/s 80C to 80U not available. Basic exemption not available. Flat rate 30%. | |||
| Other losses | Yes | Yes | No |
| In case of choice this loss should be set off first since it cannot be carried forward. | |||
| S 32(1) | S 32(2) |
| Current year depreciation | Unabsorbed depreciation |
| Rules to set off unabsorbed depreciation | |
| 1. | The unabsorbed depreciation can be set off with any head’s of income except casual income and salary income. But it shall be first set off with Business Income then with any other income. Do note that current year depreciation can be set off only with business income if cannot be set off then it shall be carried forward which becomes unabsorbed depreciation. |
| 2. | The unabsorbed depreciation can be carried forward for unlimited period. |
| 3. | Section 80 is not applicable. It means even if return of loss is not filed or filed late loss can be carried forward & set off. |
| 4. | Even if business is discontinued business loss can be set off. |
| 5. | Assessee who has incurred the loss can only set off that loss [6 exception] |
| Rules to set off the losses | Priority to set off the losses | ||
| 1. | First S 71, then S 72 and then adjust past year losses. |
1. | Current year depreciation u/s 32(1). |
| 2. | Income exempted u/s 10 cannot be set off with taxable income. | 2. | Brought forward business loss u/s 72. |
| 3. | It is mandatory to set off the loss. | 3. | Unabsorbed depreciation u/s 32(2) |
| Exceptions to the rule that assessee who has incurred the loss can only set off that loss. This exception is applicable only to S 72 & S 32(2). |
|
| 1. | 72A. Accumulated business loss of amalgamating company can be carried forward and set off by amalgamated company. |
| 2. | 72A. Accumulated business loss of demerged company can be carried forward and set off by resulting company |
| 3. | 72A. Conversion of sole proprietorship concern into a company. |
| 4. | 72A. Conversion of firm into a company |
| 5. | 72A. Conversion of Pvt. limited Company to LLP or Unlisted Company to LLP. (Limited Liability Partnership). |
| 6. | 78(2). Losses of business acquired on inheritance. Father dies and son inherits the business then son can set off the business loss. |
| S 71B | S 72 | S 73 | S 74 | S 74A | S 32(2) | ||
| HP loss |
Business loss |
Speculation loss |
Capital gain loss |
Horse race loss |
Unabsorbed dep |
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| 1. | Set off under which head |
Same Head |
Same Head |
Same Head |
Same Head |
Same Head |
Any Head |
| 2. | Carry forward for how many years |
8 AY | 8 AY | 4 AY | 8 AY | 4 AY | unlimited period |
| 3. | Section 80 | NA | A | A | A | A | NA |
| 4. | Should business be continued to set off the loss |
NA | No | No | NA | Yes | No |
| 5. | The assessee who has incurred the loss can only set of that loss (True or False) |
NA | True | True | NA | True | True |
| 6. | Any exceptions | NA | Yes | No | NA | No | Yes |
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FAQs on Set off & Carry Forward of Losses (Section 70 to 80) - Fast Track Quick Revision Income Tax - Taxation
| 1. What is the concept of set off and carry forward of losses in taxation? |  |
Ans. Set off and carry forward of losses is a provision in taxation that allows taxpayers to adjust their current year losses against their current year income or carry forward the losses to future years to offset against future profits. This provision helps in reducing the tax liability of taxpayers.
| 2. How can I set off my current year losses against my current year income? | |
Ans. To set off current year losses against current year income, you need to first determine the type of loss (such as business loss, capital loss, etc.). Then, you can adjust the loss against income from the same type of source. For example, a business loss can be set off against income from any other business. However, there are certain limitations and conditions specified by the tax authorities for set off, and it is advisable to consult a tax professional for accurate guidance.
| 3. Can I carry forward my losses if I am unable to set them off in the current year? | |
Ans. Yes, you can carry forward your losses if you are unable to set them off against current year income. The Income Tax Act allows for the carry forward of losses for a certain period, usually up to 8 years. These losses can be carried forward and set off against the profits earned in future years. However, it is important to note that there may be restrictions on the type of losses that can be carried forward and certain conditions to fulfill, such as filing the necessary forms and returns within the specified time limits.
| 4. Are there any limitations on the amount of losses that can be set off or carried forward? | |
Ans. Yes, there are limitations on the amount of losses that can be set off or carried forward. The tax laws specify that losses can be set off only against income from the same type of source. Additionally, there may be restrictions on the percentage of losses that can be set off in a particular year. For example, in some cases, only a maximum of 70% of the loss can be set off against income. The remaining loss can be carried forward to future years. These limitations vary depending on the nature of the loss and the tax regulations applicable in your jurisdiction.
| 5. Can I claim a refund if my losses exceed my income in a particular year? | |
Ans. Yes, you may be eligible to claim a refund if your losses exceed your income in a particular year. If your total income is negative due to the losses, it is known as a loss situation. In such cases, you can file an income tax return and claim a refund for the excess tax paid in previous years. However, the refund process and eligibility criteria may vary depending on the tax laws of your country. It is recommended to consult a tax professional or refer to the relevant tax regulations for accurate guidance in your specific situation.
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