BE TAX PLANNING BOSS GET TAX SAVING FROM LOSS!

Jigar M. Patel
International Tax Attorney

Sections 70 to 80 of the Income-tax Act lay down the provisions in relation to Set-Off (in the same year) and Carry-forward (to subsequent years) of Losses arising under any of the five heads of income. While this write up deals with some specific issues, the Eligibility Chart for Loss Set-Off presenting a bird’s eye view can be saved for quick reference.

Losses from House Property – Set-off & Carry Forward

If a taxpayer has a loss under the head house property, the same can be set-off against any other house property income without any monetary limit. However, in case of set-off of such loss against any other head of income, though there is no restriction in regard to the eligibility, there is a monetary ceiling of Rs. 2 lakhs. The amount of loss beyond Rs. 2 lakhs can be carried forward for a period of upto 8 years and be set off against income from house property in such years.

Set Off of Loss under the head Other Income

Loss arising under the residual head of income ‘Other Sources’ can be set off against income under any of the other four heads.

To illustrate, if a taxpayer incurs a loss of Rs. 150,000 under the head Income from Other Sources and in the same year, he has earned short-term capital gains of Rs. 50,000 and has taxable salary income of Rs. 6,00,000, he can compute his Total Income at Rs. 5,00,000.

Set-Off & Carry Forward of Business Loss

Losses under the head Income from Business or Profession can be freely used for set-off against any income under the same head, subject to the restriction that loss from speculation business can be set off only against speculation income. Business Loss can be freely set-off against income under other heads viz. house property, capital gains and other sources and there is no monetary limit prescribed for such a set-off. However, it has been specifically provided that salary income cannot be set off against business loss.

In case of any unabsorbed business loss, the same Is eligible to be carried forward for a period of upto 8 years and the same can be used for set-off against any business income in such years. It needs to be noted that as regards any unabsorbed depreciation forming part of such loss, the same can be carried forward without any restriction in regard to future number of years.

Long & Short Term Capital Losses (LTCL & STCL)

Remember that Capital Losses cannot be set off against any incomes other than Capital Gains (CG). While LTCL can be set off only against LTCG, STCL can be set off both against LTCG & STCG.

Any unabsorbed LTCL or STCL can be carried forward for set-off upto 8 years.