Set off and carry forward of loss

Set off and carry forward of loss

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Section 70 of Income Tax Act 1961

If the taxpayer has incurred losses from one source of income then the taxpayer is allowed to adjust it from any other source of income under the same head. This process is called intra-head adjustment. The general rule is that intra head adjustment is allowed except the following intra head set off:

  1. Loss from speculation business cannot be set of against profit from an non speculation business
  2. Long term capital loss can only be set off against long term capital gain and cannot be set off against short term capital gain.
  3. Loss from the business of owning and maintaining race horses cannot be set off against any income other than income from the business of owning and maintaining race horses.
  4. Loss from business specified under section 35AD cannot be set off against any other income except income from specified business (section 35AD is applicable in respect of certain specified businesses like setting up a cold chain facility, setting up and operating warehousing facility for storage of agricultural produce, developing and building a housing projects, etc.).

Section 71 of Income Tax Act 1961

If the taxpayer has incurred losses under one head then the taxpayer is allowed to adjust it from income from another head. This is called inter head adjustment. Following are the exceptions to inter head set off:

Losses under head capital gains cannot be set off against any other head income.

Losses from business and profession cannot be set off against the head salary income.

With effect from the assessment year 2018-19, loss under the head “house property” shall be allowed to be set off against any other head of income only to the extent of Rs. 2, 00,000 for any assessment year. However, unabsorbed loss shall be allowed to be carried forward for set-off in subsequent years.

Loss from an exempted source cannot be set off.

No loss can be set off against income from winnings from lotteries, crossword puzzles, race including horse race, card game, and any other game or from gambling or betting.

Section71B of Income Tax Act, 1961

An Assessee can carry forward the income losses incurred under the head house property up to 8 assessment years immediately succeeding the assessment year in which the loss has incurred and can be set off against Income from house property.

Section 72 of Income Tax Act, 1961

An Assessee can carry forward non-speculative business loss up to 8 assessment years immediately succeeding the assessment Year in which the loss has incurred.

Section 73 of Income Tax Act, 1961

Income Losses in speculative businesses can be carried forward up to 4 assessment years immediately succeeding the assessment year in which it has incurred.

Section 73A of Income Tax Act, 1961

 Specified business loss can be carry forward for any number of years and can be adjusted only against the income from specified businesses.

Section 74 of Income Tax Act, 1961

Long term capital loss can be set of against only income from long term capital gain.

Short term capital loss can be set off against long term capital gain and short term capital gain.

Losses can be carry forward up to 8 assessment years immediately succeeding the assessment year in which the loss has incurred.

Section 74A of Income Tax Act, 1961

An assessee can carry forward these losses up to 4 assessment years immediately succeeding the assessment year in which the loss has incurred

Important Note

Any person who has suffered a loss in any previous year under the head profits and gains of business or profession or under the head capital gains or loss from owning and maintaining horses or loss from specified business under section 35AD and intends to carry forward and set off such loss against the profits of the subsequent assessment year or years, should file the return of loss by the due date mentioned in section 139(1).


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