Page 88 - DCOM508_CORPORATE_TAX_PLANNING

Unit 4: Set-off and Carry Forward of Losses

Thus, short-term capital loss is allowed to be set off against both short-term capital Notes
gain and long-term capital gain. However, long-term capital loss can be set-off only
against long-term capital gain and not short-term capital gain.
2. Speculation loss: A loss in speculation business can be set-off only against the profi ts of
any other speculation business and not against any other business or professional income.
However, losses from other business can be adjusted against profits from speculation

business.
3. Loss from the activity of owning and maintaining race horses: See section 74A (3) deals with
treatment of set-off of losses from the activity of owning and maintaining race horses.

!
Caution It must be noted that loss from an exempt source cannot be set-off against profi ts
from a taxable source of income. For instance, long-term capital loss on sale of shares sold
through a recognised stock exchange cannot be set-off against long-term capital gains on
sale of land.
4.1.2 Inter Head Adjustment (Section 71)

Loss under one head of income can be adjusted or set off against income under another head.
However, the following points should be considered:
(i) Where the net result of the computation under any head of income (other than ‘Capital
Gains’) is a loss, the assessee can set-off such loss against his income assessable for that
assessment year under any other head, including ‘Capital Gains’.

(ii) Where the net result of the computation under the head “Profits and gains of business or
profession” is a loss, such loss cannot be set off against income under the head “Salaries”.
(iii) Where the net result of computation under the head ‘Capital Gains’ is a loss, such capital
loss cannot be set-off against income under any other head.
(iv) Speculation loss and loss from the activity of owning and maintaining race horses cannot
be set off against income under any other head.

Example: Mr. X submits the following particulars pertaining to the A.Y. 2013-14:
Income from salary 4, 00, 000
Loss from self-occupied property (-) 70,000
Business loss (-) 1, 00, 000
Bank interest (FD) received 80,000
In the above case of Mr. X his total taxable income for the A.Y. 2013-14 will be:
Income from salary 4, 00,000
Income from house property (-) 70,000 3, 30,000
Business income (-) 1, 00,000

Income from other sources (interest on fixed deposit with bank) 80,000
20,000
Gross total income 3, 30,000
Less: Deduction under chapter VIA Nil
Taxable income 3, 30,000

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