PANKAJ SIR-

SET OFF AND CARRY FORWARD OF LOSSES

Notes

  1. From A.Y. 2000-2001, there is no need to continue the same business in which the loss was incurred.
  2. The effect of depreciation, business loss and investment allowance should be given in the following order:
  • Current Year’s Depreciation
  • Unabsorbed Business loss
  • Unabsorbed Depreciation
  • Unabsorbed Investment Allowance.
  1. In terms of Section 80, the losses can be carried forward only if determined in pursuance of the return filed within the time prescribed u/s. 139(1) except Depreciation and House Property.
  2. Loss from an exempted source can’t be set off against profits from a taxable source of income. E.g. - long term capital loss on sale of shares sold through recognized stock exchange can not be set off against long term capital gains on sale of land.
  3. Losses can be set off from the clubbed incomes.
  4. The schemes of intra head and inter head set off is mandatory. Assessee can’t not choose to carry forward the loss instead of set off in the same PY. However no sequence of inter head set off has been given in the act. Assessee can set off in a manner, which is most beneficially to him from the tax liability point of view
SECTION 32(2): SET OFF AND CARRY FORWARD OF UNABSORBED DEPRECIATION

The respected SC IN CASE OF VIRMANI INDUSTRIES LTD. V CIThas set the following rules and steps for set off and carry forward of unabsorbed depreciation

Step 1: Where there is current year’s depreciation relating to a business then it should be set off from the amount of profits the same business.

Step 2: If full depreciation can not be set off under step 1 then set off the unabsorbed depreciation against the profits of any business or from income of profession carried on by the assessee.

Step 3: If still full depreciation cannot be set off under step 2 then it can be set off from the incomes of any other head of income, except from the income under the head salary and winning from lotteries etc.

Step 4: If full deprecation cannot be set off under step 3 then it shall be carried forward to next previous year.

Step 5: Add such unabsorbed depreciation to the amount of depreciation of such previous year in which it has been brought forward. Brought forward depreciation shall be treated as part of current year’s depreciation. Now set off aggregated depreciation as per steps 1 to 3.

Step 6: Repeat steps 1 to 5 without any time limits. This means that unabsorbed depreciation can be carry forwarded for unlimited period of time.

However step 5 and 6 are subject to the conditions of section 72(1). This means that if there is any brought forward loss of the business then it shall be set off in priority to such unabsorbed depreciation.

Source-JS Johar Book

2.

3.

5. Mr. J submits the following particulars of his income for the AY 2011-2012. You are required to find his gross total income.

Income from the let out house (Computed) / 12,000
Loss from self occupied house / 14,000
Profit of business of publication of books / 45,600
Speculation income / 8,000
Short-term capital gains / 26,000
Long-term capital gains / 4,000
Dividend from Indian company / 4,000
Winnings in card game / 8,000

The items brought forward for set-off are:

Loss from Sugar Mill of AY 2004-2005 which is discontinued / 13,000
Loss from publication business of AY 2003-2004 / 9,000
Loss in card game of AY 2004-2005 / 4,000
Speculation loss of AY 2008-2009 / 24,000
Short-term capital loss of AY 2003-2004 / 12,000
Long term capital loss of AY 2002-2003 / 14,000

Solution:Computation of Gross total Income of Mr. J

Income from House Property
(12,000 – 14,000, being loss from self-occupied house) / (2,000)
Income from Business and Profession:
(i) General Business (Publication business profit `45,600 – B/F Loss of sugar mill `13,000 – B/F Loss of publication business `9,000)
(ii) Speculation business (Profit `8,000 – B/f `24,000). Balance Loss of `16,000 shall be carried forward. / 23,600
NIL
Capital gains (STCG `26,000 + LTCG `4,000 – B/F short term capital loss `12,000) (B/F long-term capital loss cannot be set off, on account of expiry of time limit of 8 years) / 18,000
Income from other sources (winnings in card game, b/F loss cannot be set off) / 8,000
Gross total income / 47,600

Source-JS Johar Book

6.From the following particulars regarding income, compute the total income of Mr. J for the AY 2011-2012:

a)Salary `9,000 p.m.;

b)House A (let out) `40,000; House B (Let out) ` (20,000); House C (Self-occupied) `(50,000);

c)Business A `2,00,000; Business B ` (2,50,000), Business C (shares speculation) `30,000; Business D (commodity speculation) `(40,000);

d)Short-term capital gains `30,000; Short-term capital loss `40,000;

e)Long-term capital gains `1,00,000;

f)Profits from card games (gross) `50,000; Loss from horse races `30,000;

g)Winnings from lottery (net of TDS) `70,000.

Solution: Computation of gross total income of Mr. J for AY 2011-2012

Salary / 1,08,000
Income from house property (40,000 – 20,000 – 50,000) / (30,000)
Profits and gains of Business or profession :
(i)General Business (2,00,000 – 2,50,000)
(ii)Speculation Business (30,000 – 40,000) – Balance loss of `10,000 to be c/f / (50,000)
Capital gains :
(i)Short-term capital gains ( `30,000 – `40,000)(10,000)
(ii)Long-term capital gains1,00,000 / 90,000
Income from other sources : [ `50,000 + {70,000 x 100  (100 – 30)}] / 1,50,000
TOTAL INCOME / 2,68,000

Some additional Questions-Section 70- Source-JS Johar Book

EXAMPLE 1EXAMPLE 2

PGBP(Speculation business) 2,00,000PGBP(Speculation business) (1,00,000)

PGBP(Trading business)(1,00,000)PGBP(Trading business) 2,00,000

PGBP income100000PGBP income200000

EXAMPLE 3EXAMPLE 4

LTCG(1,00,000)LTCG (1,00,000)

STCG2,00,000LTCG 2,00,000

Capital gains Income200000Capital gains Income 100000

EXAMPLE 5EXAMPLE 6

House property SO(1,50,000)Cloth Business(50,000)

House property LO2,00,000Steel business75,000

HP Income 50000PGBP income 25000

EXAMPLE 7EXAMPLE 8

Speculation business(80,000)Speculation business income2,00,000

Normal business1,00,000Normal business income (1,25,000)

PGBP income100000PGBP income 75000

EXAMPLE 9EXAMPLE 10

Speculative in FOREX(2,00,000)LTCG on sale of house(80,000)

Speculative in Shares5,00,000STCG on sale of gold2,00,000

PGBP income 300000Capital Gains income 200000

EXAMPLE 11EXAMPLE 12

LTCG on sale of house2,00,000STCG on sale of land(90,000)

LTCG on sale of gold(1,00,000)LTCG on sale of house1,00,000

Capital gains income 100000Capital gains income 10000

EXAMPLE 13EXAMPLE 14

Card games on Diwali night(50,000)Dividends from RIL.5,000

Card games on New Year night 80,000Interest on debentures7,000

Card games income 30000Card games(10,000)

Income from Other Sources 7000

Some additional Questions-Section 71- Source-JS Johar Book

EXAMPLE 15EXAMPLE 16

PGBP(2,00,000)PGBP3,00,000

CG3,00,000CG(2,00,000)

TOTAL INCOME 100000TOTAL INCOME 300000

EXAMPLE 17EXAMPLE 18

CG(2,00,000)CG 3,00,000

Speculation business3,00,000Speculation business (2,00,000)

TOTAL INCOME 300000TOTAL INCOME 300000

EXAMPLE 19EXAMPLE 20

Agriculture income(2,00,000)Agriculture Income3,00,000

Trading business3,00,000Trading business(2,00,000)

TOTAL INCOME 300000TOTAL INCOME NIL

EXAMPLE 21EXAMPLE 22

PGBP (37,000)PGBP(50,000)

Lottery1,00,000 Salary income 3,00,000

TOTAL INCOME 100000TOTAL INCOME

EXAMPLE 23EXAMPLE 24

HP(1,50,000)PGBP(80,000)

Salary income5,00,000HP2,00,000

TOTAL INCOME350000TOTAL INCOME 120000

EXAMPLE 25EXAMPLE 26

Share business (speculation)2,00,000O and M of race horses(10,000)

House property(1,50,000)PGBP income2,00,000

TOTAL INCOME 50000TOTAL INCOME 200000

EXAMPLE 27EXAMPLE 28

House property(2,50,000)HP income(1,50,000)

Agriculture income6,00,000PGBP income2,00,000

TOTAL INCOMENILLTCG income2,00,000

TOTAL INCOME 250000

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