Transforming Losses into Opportunities
- Profit and loss are two sides of the same coin. While experiencing losses can be discouraging, they don’t have to be a setback. The Income Tax law provides a strategic way to set off and carry forward losses, allowing taxpayers to minimize tax burdens and optimize financial planning. Let’s explore how!
Understanding Set-Off and Carry Forward of Losses
What is Set-Off of Losses?
- Set-off refers to adjusting a loss from any income in the same financial year. This can be further classified into:
- Intra-Head Set-Off: Adjusting a loss within the same head of income.
- Inter-Head Set-Off: Adjusting a loss from one income head against another.
Set-Off of Losses – Intra & Inter Head Set-Offs
| Criteria | Intra-Head Set-offs | Inter-Head Set-offs |
|---|---|---|
| Meaning | Adjusting a loss within the same income head. | Adjusting a loss across different income heads. |
| Example | Loss from business A adjusted against profit from business B. | Loss from business adjusted against house property income. |
Set-Off Summary Table
| Losses from/against | House Property | Speculative Business | Non-Speculative Business | Long Term CG | Short Term CG | Other Sources* |
|---|---|---|---|---|---|---|
| Salary Income | ✓ | X | X | X | X | ✓ |
| House Property | ✓ | X | ✓ | X | X | ✓ |
| Speculative Business | ✓ | ✓ | ✓ | X | X | ✓ |
| Non-Speculative Business | ✓ | X | ✓ | X | X | ✓ |
| Long-Term CG | ✓ | X | ✓ | ✓ | ✓ | ✓ |
| Short-Term CG | ✓ | X | ✓ | X | ✓ | ✓ |
| Income from Other Sources | ✓ | X | ✓ | X | X | ✓ |
*Losses cannot be set off against casual income like lottery, betting, etc.
Carry Forward of Losses: Rules & Provisions
- If losses cannot be fully adjusted in the same year, they can be carried forward for future set-off, based on specific conditions under each income head.
House Property Losses
| Tax Regime | Carry Forward Provisions |
|---|---|
| Old Tax Regime | Up to ₹2,00,000 can be set-off annually. Balance carried forward 8 years. |
| New Tax Regime | No set-off or carry forward allowed. |
Business Losses
| Speculative Business | Non-Speculative Business | |
|---|---|---|
| Carry Forward Period | 4 years | 8 years |
| Set-Off | Only against speculative profits | Against any business income |
| Business Continuity | Not Required | Required |
| ITR Filing | Before due date | Before due date |
Capital Losses
- Carry forward up to 8 years.
- LTC Loss → only against LTC Gains
- STC Loss → against ST or LT Gains
- File ITR within due date to claim.
Race Horse Losses
- Carry forward for 4 years
- Only set off against same source
- File return before due date
Summary Table
| Loss | Set Off Against | Carry Forward | ITR Filing Required? |
|---|---|---|---|
| Unabsorbed Depreciation | Any income (not salary) | No time limit | X |
| House Property Loss | House property income | 8 years | X |
| Business Loss | Business income | 8 years | ✓ |
| Speculative Business Loss | Same business | 4 years | ✓ |
| Specified Business Loss | Specified business | No limit | ✓ |
| ST Capital Loss | STCG/LTCG | 8 years | ✓ |
| LT Capital Loss | LTCG | 8 years | ✓ |
| Race Horse Loss | Same income | 4 years | ✓ |
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