Set off and

5 Carry Forward of Losses

CHAPTER

“Set-off” means adjustment of losses against the profits from another source/head of income in the
same assessment year. If losses cannot be set-off in the same year due to inadequacy of eligible profits,
then such losses are carried forward to the next assessment year for adjustment against the eligible
profits of that year.

INTER SOURCE ADJUSTMENT [SECTION 70]

Set off of loss from one source against income from another source under the same head of income.
Also known as Inter source adjustment or Intra-head adjustment.
Suppose Income from first house is ` 18,000 and loss from second house is ` 15,000. In this case loss
of ` 15,000 shall be set off with ` 8,000. Income from House Property shall be ` 3,000.

INTER HEAD ADJUSTMENT [SECTION 71]

Loss under one head of income can be adjusted or set off against income under another head. Also
known as Inter-head adjustment.
Suppose Loss from house property is ` 18,000 and Income from Salary is ` 12,000. In this case loss of
` 18,000 shall be set off against an income of ` 12,000. Gross Total Income shall be nil. The remaining
house property loss of ` 6,000 shall be carried forward to next year.
Loss Intra Head Adjustment Inter Head Carry Forward
[S.70] Adjustment [S.71]
Income under Head House Property

House Property Available Available But 8 Assessment Years

Maximum 2,00,000 [Sec 71B]
Profits & Gains From Business & Profession
Specified Business Specified Business income Not available Till Loss get fully set off
Loss u/s 35AD only [Sec 72]
Speculative business Speculative Business Income Not Available 4 Assessment Years
loss [Sec 73]
Non-Speculative Available with any income Available with income 8 Assessment Years
Business loss under the head PGBP i.e. under any other head [Sec 72]
Non-Speculative Business loss except Income under
head Salaries
Specified Business income
Speculative Business Income
 Income Under Head Capital Gain
Short Term Capital Available with LTCG and Not Available 8 Assessment Years
Loss STCG [Sec 74]
Long Term Capital Available with LTCG only Not Available 8 Assessment Years
Loss [Sec 74]
Income Under Head Other Sources
Loss from Owning & Income from Owning & Not Available 4 Assessment Years
Maintaining Race Horses Maintaining Race Horses [Sec 74A]
Any other loss under From any income under the Available with income Not Allowed
the head other sources head other sources except under any other head
casual income
1. Meaning of speculative business Section 43(5)
“Speculative Transaction” means a transaction in which a contract for the purchase or sale of any
commodity, including stocks and shares, is settled otherwise than by the actual delivery or transfer
of the commodity or scrips i.e. the transactions are set off against each other instead of actually
materializing them.
2. Loss from Agriculture
Loss from Agriculture cannot be set off from incomes of other heads. Similarly loss of other heads
cannot be set off from Agriculture Income. Loss from agriculture can be set off only from agricultural
income and carry forward is allowed for 8 years and in subsequent years also it can be set off from
agriculture income.
3. No loss can be set off against the profit from winnings from races, lotteries, crossword
puzzles, etc
4. Rules for set off of unabsorbed depreciation
 The unabsorbed depreciation can be set off with any head’s of income except casual income
and salary income. But it shall be first set off with Business Income.
 The unabsorbed depreciation can be carried forward for indefinite period.
 The return of loss even if not filed in time, unabsorbed depreciation is allowed to be carried
forward.
 The business in respect of which there is unabsorbed depreciation need not be continued.
5. The sequence of claiming losses and depreciation under the head business/profession shall be as
given below:
 As per the provisions of section 72(2), brought forward business loss is to be set-off before setting
off unabsorbed depreciation. Therefore, the order in which set- off will be effected is as follows –
(a) Current year depreciation [Section 32(1)];
(b) Current year capital expenditure on scientific research and current year expenditure on family
planning, to the extent allowed.
(c) Brought forward loss from business/profession [Section 72(1)];
(d) Unabsorbed depreciation [Section 32(2)];
(e) Unabsorbed capital expenditure on scientific research [Section 35(4)];
(f) Unabsorbed expenditure on family planning [Section 36(1)(ix)].

Set off and Carry Forward of Losses 231

Illustrtion 1.
Mr. Rajeev submits the following information:
Particulars Amount
(`)
(i) Income under the head salary 6,50,000
(ii) Income from House-I 55,000
(iii) Loss from house-II (self-occupied property) 1,25,000
(iv) Loss from house-III 1,90,000
(v) Loss from leather business 68,000
(vi) Profit from cloth business 1,70,000
(vii) Business loss of chemical business acquired by Inheritance 45,000
(viii) Brought forward loss of discontinued business of textile relating to financial year 50,000
2016–17
(ix) Long term capital gain on transfer of listed equity shares on which STT was paid 75,000
(x) Short term capital loss in equity-oriented funds on which STT was paid 35,000
(xi) Income from crossword puzzles 12,000
(xii) Dividend from foreign company 8,500
(xiii) Loss on owning and maintenance of race horses 7,500
(xiv) Income from owning and maintenance of race bulls 9,000

Compute the gross total income and losses to be carried forward of Mr. Rajeev.
Illustrtion 2.
Mr. Shyam, a resident of Chandigarh, provides the following information for the financial year
2023–24:
Particulars Amount (`)
Income from textile business 4,60,000
Income from speculation business 25,000
Loss from gambling 12,000
Loss on maintenance of race horse 15,000
Eligible current year depreciation of textile business not adjusted in the income 5,000
given above.
Unabsorbed depreciation of Assessment year 2021–22 brought forward 10,000
Speculation business loss of Assessment year 2021–22 30,000

Compute the Gross total Income of Mr. Shyam and any other item of expense or loss eligible for carry
forward.
232 Taxation (Income Tax)
Illustrtion 3.
Mr. X provides the following details for the previous year ending 31.03.2024.
(i) Income under the head salary from XYZ Ltd. ` 6,00,000
(ii) Interest on FD with SBI for the Financial Year ` 72,000 (Net of TDS @10%)
(iii) Determined long term capital loss ` 96,000
(iv) Long term Capital gain ` 75,000
(v) Loss of minor son ` 90,000 computed in accordance with the provisions of Income Tax Act. Mr. X
transferred his own house to his minor son without adequate consideration few years back and
minor son let it out and suffered loss.
(vi) Loss of his wife’s business ` (2,00,000). She carried business with funds which Mr. X gifted to her.
You are required to compute taxable income.
Illustrtion 4.
Mr. X, a resident individual, furnishes the following particulars of his income and other details for the
previous year 2023–24.
Particulars Amount (`)
(1) Income under the head salary 15,000
(2) Income from Business 66,000
(3) Long term capital gain on sale of Land 10,800
(4) Loss on maintenance of Race Horses 15,000
(5) Loss from Gambling 9,100
The other details of unabsorbed depreciation and brought forward losses pertaining to Assessment
Year 2023–24 are as follows:
(1) Unabsorbed depreciation 11,000
(2) Loss from Speculative business 22,000
(3) Short term capital loss 9,800
Compute the Gross total income of Mr. X for the Assessment Year 2024–25 and the Amount of loss, if
any, that can be carried forward, or not.
Illustrtion 5
Mr. X an assessee aged 61 years gives the following information for the previous year 31.03.2024:
Particulars Amount (`)
(a) Loss from profession 1,05,000
(b) Capital loss on the sale of property-short term 55,000
(c) Capital gains on sale of shares-long term 2,05,000
(d) Loss in respect of self occupied property 15,000
(e) Loss in respect of let out property 30,000
(f) Share of loss from firm 1,60,000

Set off and Carry Forward of Losses 233

 (g) Income from card games 55,000
(h) Winnings from lotteries 1,00,000
(i) Loss from horse races in Mumbai 40,000
(j) Medical insurance premium paid by cheque 18,000
Compute the total income of Mr. X.
Illustrtion 6
Mr. X furnishes the following details for year ended 31.03.2024.
Particulars Amount (`)
Short term capital gain 1,40,000
Loss from speculative business (60,000)
Long term capital gain on sale of land 30,000
Long term capital loss on sale of shares (STT not paid) 1,00,000
Income from business of textile (after allowing C.Y. depreciation) 50,000
Income from activity of owning and maintaining race horses 15,000
Income under the head salary 1,00,000
Loss from house property (40,000)
Following are the carry forward losses:
(i) Losses from activity of owning and maintaining race horses-pertaining to A.Y. 2019–20 ` 25,000.
(ii) Carry forward loss from business of textile ` 60,000-Loss pertains to A.Y. 2015–16.

234 Taxation (Income Tax)