Order in which carry forward losses are adjust with income.

carriy forward losses are allow to be adjuste with the income of the year. However, since carry forward of losses of different heads are allow , it is of importance to know the order in which carry forward loss can be adjust. Section 72(2) of the I T Act provides order in which losses can be adjust. income

It is provide that the business loss should be set off before setting off unabsor deprecation and so on. The reason why unabsorb depreciation is to be set off after seting off of business loss is that unabsorb business loss can be carry forward for  any number of years. It is also provide that carry forward business loss will be setoff against business head only after the current year’s deprecation, current capital expenditure on scientific research and expenditure on family planning have been claimed.

The order of set off will be as under :

First: Current year depreciation [Section 32(1)];

second : Current year capital expenditure on scientific research and current year expenditure on family planning to the extent allowed;

Third : Brought forward business or profession losses [section 72(1)];

fourth  : Unabsorbed depreciation [section 32(1)];

fifth  : Unabsorbed capital expenditure on scientific research [section 36(1)(ix)];

sixth   : Unabsorbed expenditure on family planning [section 36(1)(ix)];

So while computing total income of an assessee , by adjusting the carried forward loss following the aforesaid order of adjustment of carried forward of losses , with the gross total income.

Further,

No loss can be setoff against salary income.

In the First year of loss any loss (except speculation loss) can be setoff against any other head of income. But Carried forward loss can be setoff against only under its respective heads of income.

by,

Madhu Shahu…

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