Chapter 66: Rise of American Accounts. "Hollywood ".
SET OFF OF LOSSES . CARRY FORWARD OF LOSSES.
Tax is levied on assessee's total income. To calculate total income , loss under any source or head of income is to be adjusted . Sections 70-79 of Income-tax Act deal with various provisions regarding set off and carry forward and set off of losses.
SET OFF OF LOSSES.
1. Inter-source set off of losses (within head). Loss from one source of income can be set off from income of another source within the same head of income.
Exceptions.
(1) Long term capital loss. Long-term capital loss from the transfer of a capital asset shall be allowed to be set off only out of the long-term capital gain from the transfer of another capital asset. However , short-term capital loss shall be allowed to be adjusted out of long term as well as short-term capital gain.
The business of purchase and sale of shares not to be treated as speculation business . The business of purchase and sale of shares carried on by a company shall not be deemed as a speculation business, if the principal business of such company is the business of trading in shares.
(2) Loss from running and maintenance of race horses. Loss from owning and maintenance of horses shall be set-off only out of the income from owning and maintenance of horses. This means that loss from the activity of owning and maintaining race horses cannot be set-off against any other income.
(3) Loss from an exempted source of income. If a person has loss from a source of income which is exempt under any provision of this Act, such loss cannot be set-off against the income of any other source which is taxable.
(4) Speculation loss. It can be set off only from speculation gain and not from any other income. But loss from any other source/head can be set off from speculation gain, if any.
2. Inter-head set off ( Outside head ). A loss which could not be set off within the same head of income shall be allowed to be set off out of income if any other head in the same assessment year but subject to certain exceptions.
(a) Speculation Loss.
(b) Expenses on maintenance of horse for race purposes.
(c) Loss under the head capital gains.
3. Loss under the head Capital Gains
(a) Short term capital loss can be set off first from short term and then from long term capital gain.
(b) Long term capital loss can be set off only from long-term capital gains and not from any other income.
(c) Loss from any other head can be set off from income under the head capital gains, if any.
4. Business loss not to be set off from salary income. Loss under the head ' Profits and Gains of Business or Profession ' cannot be set off from income under the head ' Salaries '.
5. No loss to be set off from casual incomes. No loss can be set off from casual incomes such as winnings from lotteries , races , card games , crossword puzzles etc.
6. Loss from a source whose income is exempted. If a person has loss from a source of income which is exempted under any provision of this Act , such loss cannot be set off out of any other taxable income.
7. Share of loss from Firm. The firm is allowed to adjust or set off its losses. A loss from firm's house property shall be allowed to be set off out of business income of the firm. Only a firm is allowed to set off and carry forward and set off these losses against its own income . So loss of a firm will not be treated as loss of its partners. This means the share of loss from a firm cannot be set off by a partner against his own individual income.
CARRY FORWARD OF LOSSES.
It means to take the loss of one previous year to succeding previous year and then adjusting it.
1. Salaries. There can be no loss under the head salaries to be carried forward.
2. House property. With effect from assessment year 1999-2000 loss under this head can be carried forward for 8 succeeding previous years to be set off from income under the head " House property " only. House property loss of assessment year 1998-1999 or related to any earlier year cannot be carry forward and set off in future years.
3. Profits and gains of Business or Profession
(a) Business loss can be carried forward for 8 succeeding previous years to be set off only out of income under the head Profits and gains.
(b) Speculation loss to be carried forward for 4 succeeding previous year [ Section 73(4) ] . Speculation loss which remains unadjusted can be carried forward to succeeding previous year to be set off only from speculation gain. Till Assessment year 2005-06 it could be carried forward for 8 succeeding previous years but with effect from the 1st day of April, 2006.[ A/Y 2006-07] speculation loss shall be carried forward for 4 succeeding previous years instead of 8 succeeding previous years.
(c) Unabsorbed Depreciation. When total depreciation is more than available profits, the excess is called unabsorbed depreciation. It can be adjusted from any other income of the year.
Depreciation which remains unadjusted as either there is no income in the relevant previous year, it can be carried forward till it is fully adjusted from any income during the succeeding previous year. It shall be treated as depreciation of the succeeding previous year.
(d) Unabsorbed capital expenditure on scientific research can be carried forward in the same manner as in case of unabsorbed depreciation .
Order of preference :
. Current depreciation
. Current capital expenditure on scientific research
. Current business loss
. B/F business loss (FIFO)
. B/F unabsorbed depreciation
. B/F capital expenditure on scientific research
4. Loss under the head capital gains
(a) Short term capital loss can be c/f for 8 succeeding previous years to be set off from first from short term capital gain and then from long term capital gain.
(b) Long term capital loss can be c/f for 8 succeeding previous years to be set off only long term capital gains and not from any other income.
5. Other sources. Loss due to maintenance of horses for race purposes can be carried forward for 4 succeeding previous years to be set off only from similar type of income.
6. In case a person is having securities as stock-in-trade and has any B/F loss under the head P&G , such loss can be adjusted from interests on securities. scary.
Weekly Power Status
-- Power
Ranking 
-- Power
stone