Losses in speculative business- provisions for set off and carry forward

 

Introduction:

A speculation loss refers to the financial loss arising from speculative transactions, which are high-risk investments generally held for short-term gains, like day trading in stocks or commodities. In India, the Income Tax Act has specific rules regarding how speculation losses are treated for tax purposes.

Sec 73 of Income Tax Act: Losses in speculation business.-

1.  Any loss, computed in respect of a speculation business carried on by the assessee, shall not be set off except against profits and gains, if any, of another speculation business.

2.  Where for any assessment year any loss computed in respect of a speculation business has not been wholly set off under sub-section (1), so much of the loss as is not so set off or the whole loss where the assessee had no income from any other speculation business, shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and-

(i) it shall be set off against the profits and gains, if any, of any speculation business carried on by him assessable for that assessment year; and

(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and soon.

Setting Off Speculative Losses:

Speculation losses can only be set off against speculative income. Unlike other business losses, speculation losses cannot be set off against other heads of income, such as salary or non-speculative business income

Carry Forward:

Speculative losses that cannot be set off in the current year can be carried forward for up to four subsequent years. However, they can only be offset against speculative gains in future years.