An overview of Rules for set off and carry forward of losses

 

1. Before making inter-head adjustment, the taxpayer has to first make intra-head adjustment.

2. Loss from speculative business cannot be set off against any other income. However, non-speculative business loss can be set off against income from speculative business.

3. Loss under head “Capital gains” cannot be set off against income under other heads of income.

4. Long-term capital loss cannot be set off against any income other than income from long-term capital gain. However, short-term capital loss can be set off against long-term or short-term capital gain.

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

6. Loss from the business of owning and maintaining race horses cannot be set off against any other income.

7. Loss from business specified under section 35AD cannot be set off against any other income ( 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 housing projects, etc.).

8. Loss from business and profession cannot be set off against income chargeable to tax under the head “Salaries”.

9. If income from a particular source is exempt from tax, then loss from such source cannot be set off against any other income which is chargeable to tax.

10. If the income of the year in which loss is incurred falls short, and taxpayer is unable to adjust entire loss, then the taxpayer may carry forward the unadjusted loss for adjustment in next year.

11. Such loss can be can carried forward only if the return of income/loss of the year in which loss is incurred is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

12. Where a change in shareholding has taken place in a previous year in the case of a company, not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year (subject to exceptions).