SET-OFF AND CARRY FORWARD OF LOSSES
1. Following are the particulars of the income of Mr. Srikant for the previous year 2007-2008
Rs
1. Income from house property
(a) Property R (+) 12,000
(b) Property J (-) 20,000
2. Profits and gains from business:
(A) Non-speculation:
(i) Business X 40,000
(ii) Business Y (-) 50,000
(B) Speculation:
(i) Silver 40,000
(ii) Bullion (-) 10,000
3. Capital gains:
(i) Long-term capital gains (+) 30,000
(ii) Short-term loss . (-) 10,000
4. Income from other sources:
(i) Card games-loss 10,000
(ii) From the activity of owing and maintaining race horses:
(a) Loss at Mumbai (-) 50,000
(b) Profit at Kolkata (+) 40,000
(iii) Dividend from Indian companies 10,000
(iv) Income by letting out plant and machinery 1,11,000
The following losses have been carried forward:
(i) Long-term capital loss from the assessment year 2004-2005: 18,000
(ii) Loss from silver speculation from the assessment year 2004-2005 and
which was discontinued in the assessment year 2005-2006: 25,000
Compute the gross total income for the assessment year 2008-2009
Computation of gross total income for the assessment year 2008-2009
Particulars Rs Rs
1. Income from house property (+ 12,000 - 20,000) (-) 8,000
2. Profits from speculation:
(i) Silver-profit 40,000
Less: Current year loss from bullion (-) 10,000
30,000
Less: Carried forward silver speculative loss surplus from speculation (-) 25,000
5,000
(ii) Add: Business profit X business 40,000
(iii) Less: Business loss Y business (-) 50,000
(-) 5,000
Unabsorbed business loss may be set-off against the income of any other
head except 'salaries' and 'winnings from lottery, card games,
crossward puzzle, betting on race horses', etc.
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3. Capital gains:
Long-term capital gains 30,000
Less: Short-term capital loss (-) 10,000
Long-term capital gain 20,000 20,000
4. Income from other sources:
(i) Income by letting out plant and machinery 1,11,000
(ii) Card game-loss of Rs 10,000
Neither it can be set-off nor it can be carried forward
(iii) Profit from race horses at Kolkata (+) 40,000
Less: Loss from race horses at Mumbai (-) 50,000
Loss to be carried forward for next four assessment year (-) 10,000
(iv) Dividend from Indian companies: Exempt under Sec. 10(34) Nil
Aggregated income after setting-off current year losses from house 1,18,000
property, profit and business against income from other sources:
Less: Carried forward long-term capital loss, from the assessment year 18,000
2004-2005 to be set-off against long-term capital gains
Gross total income or total income as there is no deduction available from GTI 1,00,000
2. Mr. Dey furnishes the following particulars of his income for the previous year 2007-2008:
Particulars Rs
A: Business loss (-) 4,00,000
Unabsorbed depreciation (-) 2,00,000
B: Business profit 10,00,000
Income from house property 2,00,000
Carried forward losses and allowance;
C business was discontinued on 31-12-2003
Apart from the abovementioned, the following unabsorbed:
1. Business loss (-) 3,00,000
2. Depreciation (-) 2,00,000
D business was discontinued on 1-3-2006 leaving the following unabsorbed:
1. Business loss (-) 3,00,000
2. Depreciation (-) 1,00,000
Compute his total income for the assessment year 2008-09.
Solution Computation of total income for the AY 2008-2009:
Particulars Rs Rs
Income from house property 2,00,000
Business - profession
Prof it of B-business (+) 10,00,000
Less: Business loss of A - business (-) 4,00,000
Depreciation of A-business (-) 2,00,000
(+) 4,00,000 4,00,000
Aggregated income 6,00,000
Less: Carried forward business loss:
(i) Loss of C Business to be set-off against business profits (-) 3,00,000
. (ii) Loss of D business (-) 3,00,000
6,00,000 (-) 6,00,000
Total income Nil
Note: Where business loss and depreciation both are being carried forward, business loss has got priority,
over depreciation. Unabsorbed depreciation is carried forward without time-limit.
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3. XYZ & Co., a partnership firm, submits the following particulars of its income and carryforward losses
for the previous year 2007-2008:
Particulars Betting on race horses made
lawfully(Rs)
Betting on race horses made
illegally(Rs)
1. Gross prize on race horses
2.Expenses incurred:
(i) Horses purchased during
the year
(ii) Medical expenses
(iii) Animal trainer fees
(iv) Fodder expenses
(v) Stable-rent/insurance .
(vi) Depreciation in the value
of horses
(vii) Staff salaries
3. Loses brought forward from
the assessment year 2007-2008
15,00,000
6,00,000
1,00,000
50,000
2,60,000
1,20,000
4,60,000
1,00,000
6,00,000
5,00,000
75,000
20,000
15,000
50,000
36,000
1,50,000
40,000
2,00,000
Solution:
Computation of total income for the Assessment Year 2008-09
Particulars Betting on race
horses made
lawfully
(Rs)
Betting on race
horses made
illegally(Rs)
Gross prize
Less: Expenses incurred:
(i) Horses purchased—not allowed
(ii) Medical expenses
(iii) Animal trainer fees
(iv) Fodder expense
(v) Stable rent/insurance
(vi) Staff salaries
(vii) Depreciation in the value of horses—not
allowed
Less: Brought forward loss
Total income of the firm = Rs 6,09,000
15,00,000
- - - -
( - ) 1,00,000
(-) 50,000
(-) 2,60,000
(-) 1,20,000
(-) 1,00,000
-------
8,70,000
6,00,000
2,70,000
5,00,000
-----
(-) 20,000
(-) 15,000
(-) 50,000
(-) 36,000
(-) 40,000
------
3,39,000
nil
3,39,000
Note: "Horse race" means a horse race upon which wagering or betting may be lawfully made
[Explanation (b) to Sec. 74A]. Thus, where wagering or betting is not lawfully made on race horses, any
loss incurred on such betting can neither be set-off nor carried forward. Hence, the carried forward loss of
Rs 2,00,000 cannot be set-off.
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4. Mr N discloses the following incomes for the PY 2007-2008
House property Business or profession Capital gains Income from other
sources
Rs
Speculation
Rs
Nonspeculation
Rs
STCG
Rs
LTCG
Rs Rs
A
50,000
P
3,00,000
X
5,00,000
C
6,00,000
F
7,00,000
Family pension
95,000
B
(-) 40,000
S
(-) 2,00,000
Y
(-) 3,00,000
D
(-) 3,00,000
E
(-)5,00,000
Loss from
(-) 50,000 letting out from
machinery/ plant
Determine income under head of income for the AY 2008-2009:
Solution: Aggregation of income under each head of income: AY 2008-2009
House property Business or profession Capital gains Income from other
sources
Rs
Speculation
Rs
Nonspeculation
Rs STCG Rs LTCG Rs Rs
A
50,000
P
3,00,000
X
5,00,000
C
6,00,000
F
7,00,000
Family pension
95,000
B
(-)40,000
S
(-)2,00,000
Y
(-)3,00,000
D
(-)3,00,000
E
(-)5,00,000
Loss from
(-)50,000 letting out
machinery/ plant
Total
10,000
1,00,000 2,00,000 3,00,000 2,00,000 45,000
5. A discloses the following incomes from business or profession for the previous year 2008-2009:
Rs
(i) Profit from X business
(ii) Loss from Y business
(iii) Loss from profession Z
(iv) Profit from speculation business – M
(v) Loss from speculation business – N
Determine the income from business or profession for the assessment year 2008-
2009
6,00,000
(-) 2,00,000
(-) 2,50,000
2,00,000
(-) 3,00,000
Solution: Income from business-profession for the AY 2008-2009
Particulars Rs
6,00,000
(-) 2,00,00
(-) 2,50,000
1,50,000
2,00,000
(-)3 ,00,000
(i) X
(ii) Y
(iii) Z
Total business profits
Income from speculation-profession
(i) M
(ii) N
Loss from speculation business
(-) 1,00,000
Speculation loss cannot be set-off against the income from business profit, though both of them fall
under the same head of income.
Thus, taxable business profits for the assessment year 2008-2009 is Rs. 1,50,000. The speculation loss
will be carried forward for future set-off for 4 assessment years, immediately succeeding the
assessment year for which it was first computed [Sec. 73(4)].
The time-limit of 4 years is applicable from the assessment year 2007-2008 and subsequent year. Prior to
this, the time-limit was 8 assessment years, immediately following the assessment year in which the
loss was first computed.
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6.D has earned income of Rs 5,60,000 from speculation business during the PY 2007-2008. However, he
has suffered losses in business and profession Rs 3,20,000 and Rs 1,70,000, respectively during the
same period. Determine his income from business profession for the assessment year 2008-2009.
Solution: Income from business profession for the AY 2008-2009:
Particulars Rs
5,60,000
(-) 3,20,000
(-) 1,70,000
Profits from speculation business
Less. (i) Loss from business
(ii)Loss from profession
Income from business and profession
70,000
7: M and N disclose the particulars in respect of capital gains/loss during the PY 2007-2008:
M Rs N Rs
(i) Long-term capital gains/
loss
(a) Shares
(b) Land
(ii) (Short-term capital
gains/ loss
(a) Machinery and
plant
(b) Jewellery
(+) 10,00,000
(-) 3,00,000
(+) 7,00,000
(-) 12,50,000
(i) Long-term capital
gains/loss:
(a) Buildings
(b) Tenancy rights
(ii) Short-term capital
gains/ loss
(a) Bonds and
debentures
(b) Goodwill
(-) 14,00,000
(+) 6,00,000
(+) 15,00,000
(-) 1,00,000
Determine capital gains, if any, assessable in their hands during the assessment year 2008-2009:
Solution: Computation of capital gains for the assessment year 2008-2009
M Rs N Rs
(+) 10,00,000
(-) 3,00,000
(+) 15,00,000
(-) 1,00,000
(+) 7,00,000 14,00,000
(+) 7,00,000
(-) 12,50,000
(+) 6,00,000
(-) 11,00,000
(-) 550,000 (-) 8,00,000
Long-term capital gains: Shares
Less: Loss from land
LTCG
Short-term capital loss:
STCG - Machinery
Less: STCL Jewellery
Net loss - ST Taxable LTCG
7,00,000 – 550,000 = 1,50,000
Short-term capital gains:
STCG - Bonds and debentures
Less: STCL - goodwill
STCG
Long-term capital gains:
LTCG - Tenancy rights Less:
LTCL – buildings
LT - capital loss
LT capital loss of - 8,00,000 cannot be set-off
against STCG of Rs 14,00,000, though both of them
fall under the same head. LT-Capital loss of Rs -
8,00,000 will be carried forward for future set-off for
8 assessment years immediately succeeding the
assessment year for which the loss was first
determined [Sec. 74(2)].
Taxable LTCG 1,50,000 Taxable STCG 14,00,000
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8. K and Z disclose the particulars of their income from other sources, earned during the PY 2007-2008.
K Rs Z Rs
(i) Loss from card games (-) 3,00,000 (i) Winning on betting on horse
races
(+) 6,00,000
(ii) Winning from card games (+) 4,00,000 (ii) Loss from betting on horse
races
(-) 4,00,000
(iii) Income from owning and
maintaining race horse:
(iii) Profit from owning and
maintaining race horse
(+) 4,00,000
(a) Loss at Kolkata
(b) Profit at Mumbai
(-) 5,00,000
(+) 2,50,000
(iv) Loss in leasing out
machinery & plant
(-) 3,50,000
(iv) Interest on securities (+) 1,00,000
(v) Loss from letting out machinery &
plant
(-) 2,50,000
Determine income from other sources, assessable in their hands for the assessment year 2008-2009
Solution: Computation of taxable income from other sources: AY 2007-2008
K Rs Z Rs
Card games: (i) Winning from
card games (ii) Loss from card
games neither can be set-off nor
can be carried forward
4,00,000 Winning on horse races:
(i) Winning on betting on horse races
(ii) Loss from betting on race horses:
Neither can be set-off nor can be
carried forward
6,00,000
6,00,000
Owning and maintaining race horses:
(i) Profits at Mumbai:
2,50,000
(ii) Loss at Kolkata
(-) 5,00,000
Profit from owning and maintaining
race horses
Less: Loss from leasing out plant and
machinery to be set-off to the extent of
profit from owning and maintaining
race horses
4,00,000
(-)3,50,000
(-) 2,50,000 50,000
Loss from owning and maintaining race
horses cannot be set-off against any
other income from other sources.
However, such loss is carried forward
for 4 assessment years immediately
succeeding the assessment year for
which the loss was first determined
[Sec. 74A(3)]
Interest on securities (+) 1,00,000
Less: Loss from letting
out plant (-) 2,50,000
(-) 1,50,000
Loss from letting out plant and machinery
cannot be set-off from winning on card
games
-
Income from other sources 4,00,000 Income from other sources 6,50,000
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9. Mr. Kushal discloses the particulars of his income earned during the PY 2007-2008
Rs
(i) Profit from business X 4,50,000
(ii) Shares of profit from an AOP, entitled to rebate of tax under Sec. 86 2,00,000
(iii) Loss from business Y 3,50,000
The Assessing Officer wants to set-off the loss of business Y against the share of profit from AOP. Do you agree
with the contention of the Assessing Officer?
Solution:
(a) (b)
Tax liability under the mode of set-off
chosen by the Assessing officer: Rs
Tax-liability under the mode of
set-off chosen by the assessee: Rs
4,50,0000
(-) 3,50,000
Profit from business X
Share of profit from AOP
2,00,000
Less: Loss from business Y
(-) 3,50,000
Unabsorbed business loss
1,50,000
4,50,000
(-) 1,50,000
1,00,000
2,00,000
Total income 3,00,000
Profit from business X:
Less: Loss from business Y
Share of profit from AOP
Total income
3,00,000
Tax liability on total income
Add: Education cess © 2%
Add : SHEC @ 1%
Tax payable
Rs
39,000
780
390
40,170
Tax liability
Less : Rebate at the average rate of tax on
the share of profit from AOP (Sec. 86) :
39000 x 2,00,000
3,00,000
Tax after rebate
Add : Education cess @ 2%
Add : SHEC @ 1%
Tax payable
Rs
39,000
26,000
13,000
260
130
13,390
Note: No particular mode of set-off has been prescribed by the income-tax law. In absence of this, the
assessee is entitled to claim a mode of set-off which is most beneficial to him. Thus, the assessee is
entitled to set-off the loss of business Y against the profits from Business X and pay tax of Rs 13,390. Even
otherwise, set off should against taxable income.
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10. Karan discloses the following particulars of his income for the previous year 2007-2008:
Rs
(i) Business A
(ii) Business B
(+)
4,50,000
(-) 6,00,000
Instead of full set-off of Rs (-) 6,00,000, Karan wants to claim a partial set-off of B-business loss of
Rs (-) 50,000 against the profits of business-A. Comment.
Solution: Tax implication Karan’s Option:
Rs
Profit from A business
Less : Business – Loss from B business
Total income
4,50,000
3,50,000
1,00,000
There will be no tax liability of Karan for the assessment year 2008-2009 as his income does not exceed the
exemption Jimit of Rs 1,00,000. Besides, Karan will be entitled to carry forward the business loss of Rs
2,50,000 for future set-off. The law does not allow him to claim partial set-off. He has to claim the full setoff:
Rs
Profit from A business
Loss from B business
Business loss to be carried forward
4,50,000
(-) 6,00,000
(-) 1,50,000
11. Determine the taxable income of Neil for the previous year 2007-2008 in the following cases:
Particulars Case I
Rs
Particulars Case II
Rs
Business loss (-) 6,00,000 STCG - short-term capital gain (+) 6,00,000
Speculation loss (-) 2,00,000 LTCL - Long-term capital loss (-) 2,00,000
LTCG (long-term capital gain) (+) 8,00,000 House property: Loss (-) 3,00,000
STCL (short-term capital loss) (-) 3,00,000 Loss from profession (-) 1,50,000
Profit from leasing out plant and
machinery
(+) 50,000 Loss from business (-) 60,000
Winning from card games (+) 4,00,000 Loss from betting on race-horse (-) 40,000
Loss from leasing plant and machinery (-) 30,000
Solution
Case I Case II
Particulars Rs Particulars Rs
LTCG
Less:
STCL
LTCG
Less: Business loss
Unabsorbed business loss
Profit from leasing out of plant
and machinery on hire
Unabsorbed business loss
to be carried forward
Unabsorbed speculation loss to be
carried forward for 4 years
The two lossess cannot be set-off
against winning from card games
Taxable income—winning
Taxable income
8,00,000
(-) 3,00,000
(+) 5,00,000
(-) 6,00,000
(-) 1,00,000
(+) 50,000
(-) 50,000
(-) 2,00,000
4,00,000
4,00,000
Short-term capital gain
Long-term capital loss cannot be
set-off against short term capital
gains.
It has to be carried forward: (-)
2,00,000
Loss from house property to be setoff
against STCG
Loss from profession to be setoff
against STCG
Loss from business to be set-off
against STCG
Loss from leasing plant and
machinery may be set-off against
STCG
Loss from betting on race horses
to be carried forward: (-)
40,000
Taxable income
(+) 6,00,000
(-) 3,00,000
(-) 1,50,000
(-) 60,000
(-) 30,000
60,000
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12 Determine the taxable income of Joyce Padit for the previous year 2007-2008 in the following two cases:
Particulars Case l Rs Particulars Case II Rs
Income from salaries Profits
from 100% export-oriented
undertaking (Sec. 10B)
(+) 4,00,000
(+) 10,00,000
Loss from export of wooden/
articles of artistic value (Sec.
10BA)
(-) 3,20,000
Loss from export of trading good (-) 5,00,000 Loss from manufacturing business (-) 4,50,000
Income from house property (+) 3,00,000 Speculation profits (+) 6,50,000
Short-term capital loss (-) 2,50,000 Loss from house property (-) 2,20,000
Gross Interest from debentures of C
Ltd.
1,20,000 Profit from owning and maintaining
race houses
(+) 1,0,000
Solution
Case I Case II
Particulars Rs Particulars Rs
Income from salaries
Income from house property
Profits from 100% exportoriented
undertaking: exempt
(Sec. 10B)
(+) 4,00,000
(+) 3,00,000
x
Loss from house property to be
set-off under inter-head
adjustment
(-) 2,20,000
Short-term capital loss of
Rs 2,50,000 cannot be set off
against the income of any other
head. It has to be carried
forward
X
Speculation profit 6,50,000
Less:
1. Loss from (-) 4,50,000
manufacturing
business
2.Loss from exporting
wooden articles not
entitled for set-off as
it is from exempted
source of income xx
Taxable speculation profit
2,00,000
(+) 2,00,000
Income from other sources:
Gross interest on debentures
(+) 1,20,000 Income from other sources: Profit
from owning and maintaining
race horses
(+) 1,00,000
Loss from export of trading
goods to be set-off under interhead
adjustment but not
against salaries to the extent of
other income
(4,20,000)
Unabsorbed business loss to be
carried forward: (-) 80,000
Total Income 4,00,000 Total income 80,000
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13. Sanjay discloses the following particulars of his income for the previous year 2007-2008
Rs
(i) Profits and gains from business of collecting and processing of
bio-degradable waste, started during PY 2006-2007
(ii) Loss from house property
(iii) Interest on Government Securities
(iv) Dividends received from foreign companies
(+) 4,50,000
(-) 6,00,000
(+) 1,50,000
(+) 2,50,000
The Assessing Officer wants to set-off the loss from house property against business profits and the balance
amount against the income of Government Securities. Do you agree?
Mode of Set-off opted by the Assessing
Officer
Mode of set-off beneficial to the
Assessee
Particulars Rs Particulars Rs
Loss from house property
Less: Profits from bio-degradable
waste
Unabsorbed loss from house property to
be set-off against
Interest from government securities
Loss from house property
Dividends from foreign companies
Taxable total income
(-) 6,00,000
(+) 4 ,50,000
(-) 1,50,000
(+) 1,50,000
Nil
2,50,000
2,50,000
Loss from house property
Less: Income from other
sources—
Dividends received from foreign
companies
Balance of loss from HP
Profits from biodegradable
waste
Interest on securities
Gross total income
Less: 100% deduction from
business of bio-degradable
waste (Sec. 80JJA)
Resiceted upto GTI
Total taxable income
(-) 6,00,000
(+) 2,50,000
(-) 3,50,000
(+) 3,50,000
(+) 1,50,000
1,50,000
1,50,000
Nil
The Income-tax Act does not specify any particular mode of set-off either under intra-head or interhead
adjustment. The assessee is free to adopt a mode of set-off which is most beneficial to him. The mode
of set-off opted by the Assessing Officer is not tenable in law.
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