No one trade for losses but when they happen one should know the rules to set off the capital losses against the income that you received and / or provisions to carry forward such losses to future years for it's intended benefit.
This document covers
There are specific provisions in Income-tax Act, 1961 for the set off and carry forward of losses. It is common for a taxpayer to suffer losses et times, and the Income Tax Department permits the taxpayer to adjust those losses against his income with some set of rules. Know more on the applicability, adjustments, Rules, tenure to carry such losses, what income can be set-off against what income head etc.
“Set-off” means adjustments of losses against the profit from another source/head of income in the same assessment year(financial year).
If losses cannot be set-off in the same year due to inadequacy of edible profit, then such losses are carry forward to next assessment year for adjustment against the eligible profit of that year.
The maximum period for which different losses can be carried forward for set-off has been provided in the Act,1961.
There are 5 heads of income as defined by Income Tax Act,1961
Broadly, there are 2 types of adjustments under Set-Off of Losses
The losses incurred by the taxpayer in one source of income shall be set off against income from any other source under the same head of income.
Exceptions for Intra Head set-off of losses: Intra Head set off is not possible in the following cases.
The losses incurred by the taxpayer under one head of income can be adjusted against any other head of Income.
Exceptions for Inter Head Adjustments: Inter Head adjustments is not possible in the following cases.
|Loss from||Salary||House Property||Non-Speculative Business||Specified Business||Speculative Business||LTCG||STCG||Owning & Maintenance of Race Horses||Others|
|House Property Loss||Yes||Yes||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Business/Profession Loss (Non-Speculative)||No||Yes||Yes||Yes||Yes||Yes||Yes||Yes||Yes|
|Speculative business loss||No||No||No||No||Yes||No||No||No||No|
|Specified Business loss u/s 35AD||No||No||No||Yes||No||No||No||No||No|
|Long Term Capital Loss||No||No||No||No||No||Yes||No||No||No|
|Short Term Capital Loss||No||No||No||No||No||Yes||Yes||No||No|
|Loss from Owing and Maintenance||No||No||No||No||No||No||No||Yes||No|
The Taxpayer has a right to carry forward the losses if the losses cannot be set off either under same head or different heads due to insufficient income in the same year. The taxpayer can carry forward the losses and adjust those losses in next year with some restrictions.
However, the loss so carried forward can be set-off only against same head of income, i.e. the benefit of "Intra-Head" adjustment is lost.
|Section||Nature of loss to be Carried Forward||Income against which the Brought Forward loss can be set off in subsequent years.||Maximum Permissible Period [from the end of the relevant assessment year] for carry forward of losses|
|71B||Unabsorbed loss from house property||Income from House Property||8 assessment years|
|72||Unabsorbed businessloss (non- speculative)||Profit and gains frombusiness or profession(non- speculative)||8 assessment years|
|73||Loss from speculationbusiness||Income from speculation business||4 assessment years|
|73A||Loss from specified business under section 35AD||Profit from specified business under section 35AD||Indefinite period|
|74||Long-term capital loss||Long-term capital gains||8 assessment years|
|74||Short-term capital loss||Short/Long-term capital gains||8 assessment years|
|74A||Loss from the activity of owning and maintaining race horses||Income from the activity of owing and maintaining race horses.||4 assessment years|
The taxpayer needs to file his income tax return to carry forward the losses and set off in subsequent years. Non-Filing of Income tax return makes the taxpayer ineligible to carry forward the losses. The following losses cannot be carried forward without filing returns.
Exception: House Property losses can be carried forward even without filing income tax returns
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