SET OFF AND CARRY FORWARD OF LOSSES

Transcription

1 SET OFF AND CARRY FORWARD OF LOSSES 1. SET OFF OF LOSSES IN THE YEAR OF LOSS: - NATURE OF INCOME SAME SOURCE SET OFF SET OFF UNDER SAME HEAD INTER HEAD SET OFF House property ALLOWED ALLOWED ALLOWED Other sources Winnings from lotteries, etc. Other incomes Owning and maintaining horses Nonspeculation business NOT ALLOWED NOT ALLOWED NOT ALLOWED ALLOWED ALLOWED ALLOWED ALLOWED NOT ALLOWED NOT ALLOWED ALLOWED ALLOWED ALLOWED(EXCEPT SALARY) Profits and gains from business and profession Speculation business ALLOWED NOT ALLOWED NOT ALLOWED Business specifies u/s 35AD ALLOWED NOT ALLOWED NOT ALLOWED

2 Unabsorbed depreciation, unabsorbed capital expenditure on scientific research, etc. ALLOWED ALLOWED ALLOWED(EXCEPT SALARY) Capital gains Short term ALLOWED ALLOWED NOT ALLOWED Long term ALLOWED NOT ALLOWED NOT ALLOWED The following point is to be noted:- No loss can be set off from income from lotteries, card games, etc. whether it is inter-source, intra-head or inter-head adjustment. 2. CARRY FORWARD OF LOSSES: - There are various provisions regarding carry forward of losses, only following losses are allowed to be carried forward:- House property loss Capital loss Loss relating to owning and maintaining horses Business loss Speculation business loss Losses pertaining to business specified u/s 35AD Note: - This note relates to the following table regarding return u/s 139, this denotes whether loss can be carried forward without filing return or not. It is to be noted that return is necessary for carry forward of current year loss, therefore loss of current year can be set off without filing return and also losses for years preceding current year can be carried forward, if return for those years were filed even if return for current year is not filed, but not the loss for current year.

3 PARTICULARS NUMBER OF CARRY FORWARD YEARS RETURN u/s 139 SET OFF FROM HOUSE PROPERTY LOSS NOT NECCESARY TO CARRY FORWARD CURRENT YEAR LOSS HOUSE PROPERTY INCOME ONLY CAPITAL GAIN LOSS SHORT TERM CAPITAL GAIN HEAD ( LONG TERM OR SHORT TERM) LONG TERM LONG TERM CAPITAL GAIN ONLY OTHER SOURCES OWNING AND MAINTAINING HORSES FOR 4 SUBSEQUENT ONLY FROM ACTIVITY OF OWNING AND MAINTAINING HORSES NOT ALLOWED TO BE OTHERS CARRY FORWARD HENCE MUST BE SET OFF AT FIRST SIGHT IN THE CURRENT YEAR. NA NA BUSINESS LOSSESS NON- SPECULATION LOSS FROM ANY TYPE OF INCOME UNDER THE BUSINESS HEAD

4 SPECULATIVE BUSINEES FOR 4 SUBSEQUENT ONLY FROM SPECULATIVE BUSINESS INCOME. ORDER OF SET OFF:- Current year depreciation and other expenditure b/f speculation loss b/f unabsorbed depreciation and other expenditure BUSINESS SPECIFIED u/s 35AD CAN BE CARRIED FORWARD INDEFINATELY NOT REQUIRED INCOME FROM ANY SPECIFIED BUSINESS u/s 35AD UNABSORBED DEPRECIATION, UNABSORBED CAPITAL EXPENDITURE ON SCIENTIFIC RESEARCH, UNABSORBED EXP. ON FAMILY PLANNING CAN BE CARRIED FORWARD INDEFINATELY NOT REQUIRED CAN BE SET OFF FROM BUSINESS HEAD FIRST AND THEN FROM ANY HEAD (EXCEPT SALARY). ORDER OF SET OFF IS: - Current year dep. Current year cap. Exp. On sc. Research Current year exp. On family planning B/f business loss B/f unabsorbed Dep. B/f other exp.

5 3. AN EXCEPTION TO CARRY FORWARD BY SAME PERSON: - The general rule that business loss can be carried forward only by person who incurs such loss have some exceptions in case of business losses. These are as follows: - a) INHERITANCE: - In case of inheritance b/f business loss can be carried forward by another person for the unexpired period of 8 years. However unabsorbed depreciation cannot be carried forward. b) AMALGAMATION: - In case of amalgamation of companies in accordance with provisions specified u/s 72 A, 72AA, business loss of amalgamating companies can be carried forward for a period of fresh 8 years. Unabsorbed depreciation can also be carried forward. c) SUCCESSION OF PROPRIETARY CONCERN OR PARTNERSHIP FIRM BY A COMPANY: - In this case, business loss of the concern or firm can be carried forward by the company for fresh 8 years but certain conditions mentioned in section 47 have to be fulfilled. Unabsorbed depreciation can also be carried forward. d) DEMERGER: - If demerger is carried out within the provisions of the act, then business loss of the demerged company can be carried forward by resulting company for unexpired period of 8 years. Unabsorbed depreciation can also be carried forward. 4. CARRY FORWARD AND SET OFF IN CASE OF CHANGE OF CNSTITUTION OF THE COMPANY ( section 79): - This provision applies to company, not being a company in which public is substantially interested. Where there is change in constitution in such company, loss cannot be carried forward unless, On last day of the previous year and on the last day of previous year in which loss was incurred, not less than 51% of voting power is beneficially held by same persons. This provision is not applicable in case of:- Death of shareholder On account of transfer of shares by way of gifts to relatives of shareholder Any change in constitution of a Indian company being a subsidiary of foreign company because of amalgamation or demerger of the foreign company provided that 51% of shareholders in the resulting or amalgamated company are same as that in amalgamating or demerged foreign company.

6 THE ABOVE SECTION WOULD NOT APPLY IN CASE 51% OF VOTING POWER IS HELD BY SAME PERSONS WHO HOLD THEM BEFORE RECONSTITUTION. EXAMPLE: - Mr. X holds 38% voting power and Mr. Y holds 25% voting power of ABC ltd. Now due to change in constitution Mr. X holds 28% voting power in company and Mr. Y holds 26% power in company. Therefore, 51% of voting power is in hands of same persons, hence this section is not applicable.