Set Off And Carry Forward Of Losses under Income Tax Act

There can be profit and also losses in every type of business, where losses are difficult to digest. Though Income Tax Act in India provides for the benefits of losses too. The law contains the provisions for set off and carry forward of losses. 

SET OFF OF LOSSES:

Set off of losses means making adjust in losses which shall be against the profit of the same financial year. If it is not possible to set off the losses against profit in the same year then it will be carry forward to next year. A set off can be of two types which is intra-head set off and an inter-head set off. 

INTRA-HEAD SET OFF:

The losses from one source of income that can be adjusted against income from other source which shall be under the same head of income.

INTER-HEAD SET OFF:

After adjusting the losses under intra-head set off remaining losses can be set off against other heads of income.

CARRY FORWARD OF LOSSES:

After making proper adjustment of losses under intra-head set off and inter-head set off, if there is still any loss which is remaining then, the unadjusted losses shall be carried forward to next year against income of these years. 

The rule for carrying forward of every head is different for all the heads which can be as follows:

1. LOSSES FROM HOUSE PROPERTY:

It can be only adjusted against the income of house property. This can be carry forward even if the return file is filed lately and it can be carry forward up to 8 years.

2. LOSSES FROM NON-SPECULATIVE BUSINESS:

It can be carry forward up to 8 assessment year, and it can be only adjusted against the income from business and profession. It cannot be carry forward if the return is not filed. It is not necessary that the business shall be continuing.

3. LOSSES FROM SPECULATIVE BUSINESS:

Losses in this case shall be carry forward up to 4 assessment year, and it can be only adjusted against the income from speculative business. It shall not be carry forward if return file is not filed on due date and it is not necessary if the business is not continuing.

4. SPECIFIED LOSSES UNDER SECTION 35AD:

No time limit has been specified under this section. Not necessary that the business is in continue. Income shall be only adjusted against the income from specified business, and it will not be carry forward if the return is not filed on due date.

5. CAPITAL LOSS:

Loss under this will be carry forward up to 8 assessment year, if the loss is under long term capital then it can be only adjusted against long term capital gains. Short term capital loss can be adjusted against long term capital gains and also against short term capital gains. It cannot be carried forward if the return is not filed on due date.

6. LOSSES FROM OWNING AND MAINTAINING RACE HORSES:

Losses under this head can be carry forward up to 4 assessment year, can be only adjusted against the income from owning or maintaining race horses. It cannot be carry forward if the return is not filed on due date.