Describe, in brief, the provisions for set off and carry forward of losses.

Carry forward and set off of losses

If the losses could not be set off under the same head or under different heads in the same assessment year, such losses are allowed to be carried forward to be claimed as set off from the income of the subsequent assessment years.

All losses are not allowed to be carried forward. Another very important aspect is that in case of carry forward, losses can be only set off under the same head of income only. Inter head adjustment is not allowed.

Only the following losses are allowed to be carried forward and set off in the subsequent years.

a) House property loss

b) Business loss

c) Speculation loss

d) Capital loss

e) Loss on account of owning and maintaining race horses

Hence any loss under the head income from other sources is not allowed to be carried forward. (Except race horses)

Compulsory filing of loss of return (Section 80)

Although the above losses are allowed to be carried forward, it is allowed only when such loss has been determined in pursuance of a return of loss submitted by the assessee on or before the due date for filing of the returns prescribed under Section 139(1). However loss under the head income from house property can be carried forward even if the return is not filed within the due date mentioned under Section 139(1).

Carry forward and set off of loss from house property (Section 71b)

A loss under the head house property will be allowed to be carried forward for 8 assessment years to claim it as a set off in the subsequent years under the head ‘Income from house property’. Therefore, if the loss of house property of the previous year 2003-2004 which could not be set off because of absence or inadequacy of the income of previous year 2003-2004, it may be carried forward for 8 assessment years succeeding assessment year 2004-2005 to be set off from income under the head house property.

Carry forward and set off of business losses (Section 72)

Where the loss under the head ‘profits and gains of business or profession’ other than loss from speculation business, could not be set off in the same assessment year because either the assessee had no income under any other head or the income was less than the loss, such loss which could not be set off in the same assessment year, can be carried forward to the following assessment years, However it is subject to following conditions:

i) Business losses can be adjusted only against business income: Business income may be from the same business in which the loss was incurred, or may be any other business.

ii) Business in respect of which a loss is incurred may or may not be continued.

iii) Losses can be set off only by the assessee who has incurred loss