Page 89 - DCOM508_CORPORATE_TAX_PLANNING

Corporate Tax Planning

Notes

Notes Gross Total Income includes salary income of 3,30,000 after adjusting house
property loss. Business loss of 1,00,000 is set off against bank interest of 80,000 and
remaining business loss of 20,000 will be carried forward as it cannot be set off against
salary income.

Basic Rules Regarding Set-off and Carry Forward of Losses

1. A very important rule to remember is that losses that are carried forward have to be set off
against income from the same head in the subsequent years – they cannot be set off against
income from any other head of income.

Example: If you have a loss from house property, you can set it off against income from
house property or income from salary in the year of the loss. But if you carry it forward, in the
next year, you can set it off only against income from house property.
2. A carried forward loss can be set off against income in subsequent years only if the loss has
been declared in the income tax return filed by you.

Additionally, if you have:

A loss under the head capital gains, or
Speculation business loss, or
A loss under the head income from business or profession, or
Loss from the activity of owning and maintaining race horses.

You have to file a loss return (or a return of loss) as per section 139 (3) if you want to carry
forward the loss to subsequent years.
3. A loss for a particular year can be carried forward only if the income tax return for that year

is filed by the due date. The only exception to this rule is loss from house property – this

loss can be carried forward even if the IT return is not filed in time.
4. Loss from a source of income which is exempt from income tax (for example, an agricultural
loss) cannot be set off against income from a taxable source of income.
5. Loss from none of the heads of income can be set off against winnings from lotteries, horse
races, gambling, etc. The losses from these cannot be set off even against income from
lotteries, horse races, gambling, etc.

Caselet Unabsorbed Depreciation Set-off at Sri Rajarathinam
Transports Pvt. Ltd.

he assessee, a private limited company in this case, before the Madras High Court
reported in 199 ITR 203, in the course of the assessment proceedings, for A.Y.
T1965-66 claimed that unabsorbed depreciation totalling to ` 78,984 in respect of the

A.Ys. 1960-61 to 1964-65 be allowed to him. The Assessing Officer held that the unabsorbed
depreciation of ` 78,984 could not be allowed to be set-off in view of the fact that the
depreciation had not been determined for the purpose of being carried forward. In that
Contd...

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