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Unit 4: Set-off and Carry Forward of Losses

Self Assessment Notes

State whether the following statements are true or false:

4. Income from house property we mean the annual value of a property, consisting of any
buildings or lands appurtenant thereto, of which the assessee is the owner.
5. In any assessment year, if there is a loss under the head ‘Income from house property’, such
loss will first be set-off against income from any other head during the same year.

6. Once a particular loss is carried forward, it cannot be set off only against the income from
the same head in the forthcoming assessment years.

4.3 Sections 72 and 80

Sections 72 and 80 deals with carry forward and set-off of business losses. Under the Act, the
assessee has the right to carry forward the loss in cases where such loss cannot be set-off due to
the absence or inadequacy of income under any other head in the same year. The loss so carried

forward can be set-off against the profits of subsequent previous years.
Section 72 covers the carry forward and set-off of losses arising from a business or profession.
Conditions

The assessee’s right to carry forward business losses under this section is, however, subject to the
following conditions:-
(i) The loss should have been incurred in business, profession or vocation.

(ii) The loss should not be in the nature of a loss in the business of speculation.
(iii) The loss may be carried forward and set-off against the income from business or profession
though not necessarily against the profits and gains of the same business or profession

in which the loss was incurred. However, a loss carried forward cannot, under any

circumstances, be set-off against the income from any head other than “Profits and gains of
business or profession”.

(iv) The loss can be carried forward and set off only against the profits of the assessee who
incurred the loss. That is, only the person who has incurred the loss is entitled to carry
forward or set off the same. Consequently, the successor of a business cannot carry forward
or set off the losses of his predecessor except in the case of succession by inheritance.

(v) A business loss can be carried forward for a maximum period of 8 assessment years
immediately succeeding the assessment year in which the loss was incurred.
(vi) As per section 80, the assessee must have filed a return of loss under section 139(3) in

order to carry forward and set off a loss. In other words, the non-filing of a return of loss
disentitles the assessee from carrying forward the loss sustained by him. Such a return

should be filed within the time allowed under section 139(1). However, this condition does
not apply to a loss from house property carried forward under section 71B and unabsorbed
depreciation carried forward under section 32(2).

Did u know? The income from business and profession is known as profi t and gains. While
calculating the profit and gains, we deduct various expenses from it. The expenses to be

deducted for calculating the gain are defined in the Income Tax Act. Sections 30 to 37 cover

expenses, which are expressly allowed as deduction while computing business income,
sections 40, 40A and 43B cover expenses which are not deductible.

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