Summary presentation of Section 70-80 of the Income tax act, 1961

1. SET OFF
AND
CARRY FORWARD OF LOSSES
(SEC 70-80)
Presented by – Bhavesh Trilokani

2. What is Set Off ?
• It refers to adjustment of losses against the eligible profits of the year. It is
governed by section 70 and section 71 of the Income Tax act.

3. SET OFF
INTER SOURCE
ADJUSTMENT
WITHIN SAME
HEAD OF
INCOME
(SEC 70)
INTER HEAD
ADJUSTMENT
WITHIN OTHER
HEADS OF
INCOME
(SEC 71)

4. Section 70 : Inter source adjustment
• Setting off loss of one source against income from other source within the
same head.
• Examples :-
► Loss of one self occupied property can be set off against income from
let out property.
► Loss from textile business can be set off against profit of leather
business.

5. Exceptions to the rule of Inter source
adjustment
• Loss from speculation business.
• Loss from activity of owning and maintaining racehorses.
• Set off of losses against casual winnings.
• Long term capital loss.
• Loss from an exempt source of income.
• Loss from business specified under section 35AD.

6. Section 71: Inter Head Adjustment
• Under this section , loss which could not be set off u/s 70 ( i.e. by way inter
source adjustment ), can be set off against income under other heads .
• Examples
► Losses from Non-speculative business can be set off against
Income from other Heads except Salary.
►Losses from house property can be set off against other heads
upto limit specified of Rs. 2,00,000. {Sec. 71(3A)}

7. Exceptions to the rule of inter head
adjustment
• Loss from a speculation business.
• Loss under the head “Profits and gains of business or profession” against
income from Salary. {Sec. 71(2A)}
• Loss from activity of owning and maintaining race horses.
• Set off of losses against casual winnings.
• Any loss under Capital Gains can’t be set off. {Sec. 71(3)}

8. Summary of rules for Set off
• Income from Salaries
• Business Income(Non Speculative)
• Capital Gains
• Income from other sources.
House Property
Losses(upto Rs. 2 lac.)
• Income from Speculative business only.
Speculative Business
Losses
• House Property
• Capital Gains
• Income from other sources.
Non Speculative
Business Losses

9. • Long term capital gains.Long term
Capital Loss
• Long term capital gains.
• Short term capital gains.
Short term
Capital Loss
• Salaries
• House Property
• Business Income
• Capital gains
Income from
other sources

10. Carry forward of Losses
• Losses which could not be set off against income of the assessment year , do
not lapse , but are allowed to be carried forward to be set off against income
of subsequent years .
• Carry forward of losses for each head is governed by different sections
which define the no’s of years it can be carried forward for, against which
income it can be set off etc.

11. Section 71B: Carry forward of loss from
“House Property”
• Set off against: Future income under the head “House Property” only .
• Time period : maximum of 8 AY .
• The time period is to be calculated from end of the relevant assessment year
in which loss was suffered .
• Example : if loss relates to AY 2012 -13 , it can be c/f up to AY 2020 -21 .

12. Section 72: Carry forward of loss of Non-speculation
business.
• Set off against : future income from any business of assessee .
• Time period: 8 AY
• It is not necessary that it is must be set off against income from same
business.
• Such loss can be can carried forward only if the return of income/loss of
the year in which loss is incurred, is furnished on or before the due date of
furnishing the return, as prescribed under section 139(1).

13. Section 73: Loss In Speculation Business
• Set off against : Income from any speculation businesses only .
• Time Period: 4 AY
• It cannot be set off against any other head .
• The business to which the loss pertains to may be discontinued .
• Such losses cannot be carried forward by an assesses if he has not filed his
Income Tax Return for the Financial Year within the due date

14. Section 73A: Loss Of Specified Business
u/s 35AD
• Any loss computed in respect of a specified business shall be allowed to be
adjusted only profit of some other specified business, if any.
• If any loss remains unabsorbed as above , It can be can be carried forward
so on.
• Such loss can be can carried forward only if the return of income/loss of
the year in which loss is incurred is furnished on or before the due date of
furnishing the return, as prescribed under section 139(1).

15. Section 74: Carry forward of loss under the
head “Capital gains’’
• Set Off Against :
► Unabsorbed Short Term capital loss
• Long term capital gains.
• Short term capital gains.
► Unabsorbed Long Term capital loss
• Only against long term capital gains.
• Time Period: 8 AY.
• Such loss can be can carried forward only if the return of income/loss of the year in which loss is incurred
is furnished on or before the due date of furnishing the return, as prescribed under section 139(1).

16. Section 74A: Carry forward of loss of activity of
owning and maintaining race horses.
• Set of against: future income of “same’’ business only.
• Time period: 4 AY.
• Such loss can be can carried forward only if the return of income/loss of
the year in which loss is incurred is furnished on or before the due date of
furnishing the return, as prescribed under section 139(1).

17. Section 75 : Losses of Firms
• Where the assessee is a firm, any loss in relation to the assessment year
commencing on or before the 1st day of April, 1992, which could not be set
off against any other income of the firm and which had been apportioned to
a partner of the firm but could not be set off by such partner prior to the
assessment year commencing on the 1st day of April, 1993, then, such loss
shall be allowed to be set off against the income of the firm subject to the
condition that the partner continues in the said firm and to be carried
forward for set off under sections 70, 71, 72, 73, 74 and 74A.

18. Section 78 : Carry forward and set off of losses in case of
change in constitution of firm or on succession.
• [1] Where a change has occurred in the constitution of a firm, nothing in this
Chapter shall entitle the firm to have carried forward and set off so much of
the loss proportionate to the share of a retired or deceased partner as
exceeds his share of profits, if any, in the firm in respect of the previous
year.
• [2] Where any person carrying on any business or profession has been
succeeded in such capacity by another person otherwise than by inheritance,
nothing in this Chapter shall entitle any person other than the person
incurring the loss to have it carried forward and set off against his income.

19. Section 79 : Carry forward and set off of
losses in case of certain companies.
• [a] in the case of a company not being a company in which the public are substantially interested and
other than a company referred to in clause [b], no loss incurred in any year prior to the previous year shall be
carried forward and set off against the income of the previous year, unless on the last day of the previous
year, the shares of the company carrying not less than fifty-one per cent of the voting power were
beneficially held by persons who beneficially held shares of the company carrying not less than fifty-one per
cent of the voting power on the last day of the year or years in which the loss was incurred
• [b] in the case of a company, not being a company in which the public are substantially interested but being
an eligible start-up as referred to in section 80-IAC, the loss incurred in any year prior to the previous year
shall be carried forward and set off against the income of the previous year, if, all the shareholders of such
company who held shares carrying voting power on the last day of the year or years in which the loss was
incurred,—
• [i] continue to hold those shares on the last day of such previous year; and
• [ ii] such loss has been incurred during the period of seven years beginning from the year in which such
company is incorporated:

20. Section 80 : Submission of return of losses.
• Although the above losses are allowed to be carried forward, but the carry
forward is allowed only when such loss has been determined in pursuance of
a return of loss submitted by the assessee on or before the due date for filing
of the returns prescribed under section 139(1).

21. Thank You.

22. Bhavesh Trilokani
Cell no. :- +91-7014310728
E-Mail :- trilokanibhavesh@gmail.com

23. Bhavesh Trilokani
Cell no. :- +91-7014310728
E-Mail :- trilokanibhavesh@gmail.com