1. Inter – source adjustment under the head of income (intra head adjustment)

2. Inter – head adjustment in the same assessment year.

3. Carry forward of loss.

If the net result for any assessment year, in respect of any source under any head of income, is a loss, the assessee is entitled to have the amount of such loss set off against his income from any other source under head of income for the same assessment year.

X has two businesses – A & B.

Profit From Business A Rs. 500000

Loss From Business B Rs. 200000.

The Loss of Rs. 200000 can be set off with his Profit of Rs. 500000. Therefore the amount taxable under the head Profit & Gains from Business will be (500000 – 200000) Rs. 300000.

Where the net result of computation made for any assessment year in respect of any head of income is a loss, the same can be set off against the income from other heads.

X has two non speculative businesses A & B.

Besides he has income from house property.

Profit From Business A Rs. 70000

Loss From Business B Rs. 290000.

Income from House property Rs. 510000

The Net Loss from both businesses of Rs. 220000(290000-70000) can be set off with House Property income of Rs. 510000. Therefore the net income taxable is Rs. 290000.

Speculation Loss – Cannot be set off against any other head.

Capital Loss - Cannot be set off against any other head except ‘Capital Gains’.

Loss from the activity of owning and maintaining race horses - Cannot be set off against any other head.

Business loss cannot be set off with Salary. Loss cannot be set off against winnings

from lotteries, crossword puzzles etc. Loss from purchase of securities.

The following losses can be carried forward: - Loss under the head “Income from House

Property”. Loss under the head “Profits and Gains from

Business or Profession”. Loss under the head “Capital Gains”. Loss from the activity of owning and

maintaining race horses.

Loss can be set off only against business income.

Losses can be carried forward by the person who incurred the loss.

Loss can be carried forward for 8 years. Return of loss should be submitted in time. Continuity of business not necessary. Carry forward of unabsorbed depreciation,

capital expenditure on scientific research and family planning expenses.

Speculative loss can be set off only against speculative income.

Can be carried forward for 4 years. Continuity of Business is not necessary. Return of Loss should be submitted in time.

Long term capital loss can be set off only against long term capital gains.

Short term can be set off against short term or long term capital gains.

Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed.

Such loss can be carried forward unless return is filed within the time limit of the section.

Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses.

Loss can be carried forward for four assessment years immediately succeeding the assessment year in which the loss was first computed.

Such loss cannot be carried forward unless return is filed within the time limit of section 139(1).

Loss can be carried forward for eight assessment years.

Income from House I – 60000 Loss from House II – (30000) NET INCOME 30000

He has brought forward losses H1 (98-99) 30000, H2 (2001-02) 35000

98-99 H1 loss will be ignored. Loss of 01-02 will be adjusted with 30000. Therefore 5000 will be carried forward.

Type of Loss to be carried forward to the next year(s)

Income against which carried forward loss can be set off in next year(s)

Years

HOUSE PROPERTY LOSS INCOME FROM HOUSE PROPERTY 8 YEARS.

SPECULATION LOSS SPECULATION PROFITS 4 YEARS.

NON SPECULATION BUSINESS LOSS:

Unabsorbed Depreciation, Scientific Research & Family Planning Expenditure

ANY INCOME NO TIME LIMIT

Other Business Losses SPECULATIVE AND NON SPECULATIVE

8 YEARS

SHORT TERM CAPITAL LOSS SHORT AND LONG TERM GAINS 8 YEARS

LONG TERM CAPITAL LOSS LONG TERM CAPITAL GAINS 8 YEARS

LOSS FROM ACTIVITY OF OWNING & MAINTAINING RACE HORSES

INCOME FROM SUCH ACTIVITY 4 YEARS

Case study-1 XY Ltd. wants to amalgamate with PQ Ltd.The following

losses /allowances of XY ltd. in the assessment of XY Ltd is given below. Find out the tax implications:-

Unabsorbed depreciation of the previous year 1998-99-Rs.36,000 Brought forward business loss of the previous year 2000-01 is Rs. 1,00,000;Unabsorbed scientific research expenditure-Rs.11,000; bad debts-Rs.15,000;

Capital gain on transfer of capital assets to PQ Ltd.Rs.2,00,000 and brought forward capital loss Rs.40,000;

Answers

Loss of XY before amalgamation

PQ XY

Unabsorbed depreciation Rs.36000,

If sec.72ASatisfied-deductible

It cease to exist –not entitled

Brought forward business losses-10,00,000,Bad debtsCapital gain Rs. 2,50,000Capital brought forward loss

Allowed

Not taxableNot allowed

Not transfer

Capital asset converted into stock in trade The new company has to consider such gan

as business income. The cost of such goods will be the cost of acquisition of original owner.

Case-II X ltd. purchased immovable property in

1994 for Rs. 50,00,000 and spent Rs 20,00,000 for improvement. The asset is transferred to Y Ltd which is dealing with properties for Rs.90,00,000 in the scheme of amalgamation of these two companies. Y ltd sold the property for 110 lakhs. How much is the business income?/Capital gain?/

Business income of Rs.110-70=40 lakhs.

Suppose Y ltd. Spent on repairs of the house property Rs. 5,00,000 how is income computed?

Thank you