explain about setoff and carry forward of losses under the provisions of income tax act 1961
Answers
losses under Income-Tax Act, 1961
The Income-Tax Act, 1961, allows set-off and carry-forward of the loss incurred by any assessee subject to some restrictions Apart from other information, the new income-tax forms, ITR-1 to ITR-8, notified by the Central government seeks details on set-off of losses. Now almost every assessee has to give this information. Therefore, one has to be aware of the exact provisions relating to set-off. Otherwise there is every possibility of claiming incorrect set-off.
The colour of money
The Income-Tax Act, 1961, allows set-off and carry-forward of the loss incurred by any assessee subject to some restrictions Apart from other information, the new income-tax forms, ITR-1 to ITR-8, notified by the Central government seeks details on set-off of losses. Now almost every assessee has to give this information. Therefore, one has to be aware of the exact provisions relating to set-off. Otherwise there is every possibility of claiming incorrect set-off.
‘Loss’ in common parlance is understood as excess of expenses over income. The Income-Tax Act, 1961, allows set-off and carry-forward of the loss incurred by any assessee subject to some restrictions. Let us see the relevant provisions relating to set-off of losses under the different heads of income:
* Loss from Business/profession [Sec 72]
* Any loss under the head, ‘profit and gain of business,’ other than speculation loss and depreciation can be set off against any other business income or any other head of income, except salary income, in the same assessment year.
* After such setting off, if the resultant figure is yet a loss (business loss): If the loss in greater than income from any other business or income from any other head, then such loss can be carried forward up to eight assessment years. On carrying forward to subsequent years, this loss can be set off only against business income and not against any other head of income.
* Speculation loss can be set off only against speculation profit in the same assessment year. But even after such setting off if the resultant figure is a loss, then it can be carried forward for set off in subsequent years up to four assessment years. From assessment year 2006-07 up to assessment year 2005-06 such loss could be carried-forward for eight assessment year. In subsequent years, setting-off of the loss is allowed only against speculation profit [Section 73].
Transactions in derivatives entered into on recognised stock exchange through a broker or a Securities and Exchange Board of India (Sebi)-recognised intermediary and supported by a time-stamped contract note is excluded from the definition of speculative transaction [Section 43(5)(d)]. Thus, such loss is to be treated in the same manner as ‘non speculative business loss’.
Speculative business loss can be set off against only speculative business income. But non-speculative business loss can be set off against any business income (whether speculative or non speculative) .
* Depreciation can be set off in the same assessment year as well as in the subsequent assessment years against business income or any other head of income except salary income. Further, depreciation can be carried forward indefinitely for set-off in subsequent years [Section 32(2)].
* As unabsorbed depreciation can be carried forward for any number of years. In subsequent years, one must first set off current year’s depreciation, then brought forward business loss and then the unabsorbed depreciation.
* Continuity of business is now not necessary for the purpose of set-off and carry-forward.
* Loss from a house property [Sec 71B]
* Loss arising from a house property can be set off against income from any other house property or income from any other head in the same assessment year.