SET-OFF AND CARRY FORWARD OF LOSSES

In every form of business, there can be profit and losses, with losses being particularly difficult to swallow. Though the Indian Income Tax Act allows for the benefits of losses as well. The statute includes provisions for loss set-off and carry-forward.

LOSSES ARE SET OFF:
Set off of losses refers to the adjustment of losses against the earnings of the same fiscal year. If losses cannot be offset against profits in the same year, they will be carried forward to the following year. There are two sorts of set offs: intra-head set off and inter-head set off.

SET OFF INTRA-HEAD:
Losses from one source of income that can be offset by income from another source that falls under the same income category.

LOSSES ARE CARRIED FORWARD:
If there is still any loss after properly adjusting losses under intra-head and inter-head set off, the unadjusted losses will be carried forward to the following year against the revenue of these years.

For each head, there is a distinct rule for carrying forward, which can be as follows:

LOSSES FROM HOUSE PROPERTY:
They can only be offset by house property income. This can be carried forward for up to eight years, even if the return file was recently filed.

NON-SPECULATIVE BUSINESS LOSSES:
It can be carried forward for up to eight assessment years, and it can only be adjusted against business and profession income. If the return isn't submitted, it can't be carried forward. It is not required that the company continue to operate.

LOSSES FROM SPECULATIVE BUSINESS:
Losses in this scenario can be carried forward for up to four assessment years and can only be offset against speculative business income. It will not be carried over if the return file is not filed on time, and it is not required if the business is no longer operational.

LOSSES SPECIFIED UNDER SECTION 35AD:
Under this section, no time limit has been set. It is not necessary for the business to continue. If the return is not filed on time, the income will only be adjusted against the revenue from the selected business and will not be carried forward.

CAPITAL LOSS:
Losses under this section can be carried forward for up to eight assessment years; however, if the loss falls under long-term capital, it can only be offset by long-term capital gains. Long-term capital gains and short-term capital gains can both be offset by short-term capital losses. If the return isn't filed on time, it can't be carried forward.

LOSSES FROM OWNING AND MAINTAINING RACE HORSES:
Losses from owning and maintaining race horses can be carried forward for up to four assessment years and can only be offset against revenue from owning or maintaining race horses. If the return isn't filed on time, it can't be carried forward.