The document discusses the concept of set off and carry forward of losses in India. It explains that losses under certain heads like house property, business, capital gains etc. can be set off against profits of the same year either within the same head (inter-source) or against another head (inter-head). Any remaining losses can be carried forward for a specified number of years to be set off against future profits. The key heads where loss set off and carry forward is allowed are house property, business, speculation, capital gains and maintaining race horses.

2.  There might be cases when we have loss
under one of the heads of income during
the same year & we also have profit under
the same or some other head of income,
we can reduce the profit by the amount of
loss. This process is known as Set off of
Losses.
 Set-off of losses means setting-off losses
against the income of the same year.
 The objectives of set off of losses is to

3.  If income is less than the loss we cannot set off the full loss.
 In such cases we can carry forward the loss to the next year
so that we can set it off against income in the subsequent
years.
 Losses can be only set off under the same head of income
only. Inter head adjustment is not allowed.
 All losses are not allowed to be carried forward.
 Only the following losses are allowed to be carried forward
and set off in the subsequent years.
a) House property loss
b) Business loss
c) Speculation loss
d) Capital loss
e) Loss on account of owning and maintaining race horses.

4. Sections Particulars
70 Set off of loss from one source against income from another source
under the same head of income.
71 Set off from one head against income from another.
71B Carry forward & set off of loss from House property.
72 Carry forward & set off of Business losses.
72A Amalgamation , conversion of firm or proprietary concern to
company.
73 Losses in speculation business
74 Losses under the head Capital gains.
74A Carry forward & set off of loss from owning & maintaining race
horses.

5. There are three steps involved in this
 Step1
Inter-source adjustment under the same head of income
 Step 2
Inter head adjustment in the same assessment year. Step 2 is only
applied if it is not possible to set off a particular loss under Step1
 Step3
Carry forward of a loss this step is only applicable if a loss is not set off
under Step 1 and 2.
No loss can be set off against any income from lottery, crossword puzzles,
horse races, gambling, etc.

6.  Inter-source means when loss of one
source is set-off against the income of
some other source under the same head
of income.
 If the net result for any assessment year,
in respect of any source under any head
of income, is a loss, the assessee is
entitled to have the amount of such loss
set off against his income from any other

7. X has two businesses – A & B.
Profit From BusinessA Rs. 5,00,000
Loss From Business B Rs. 2,00,000.
The Loss of Rs. 2,00,000 can be set off with his Profit
of Rs. 5,00,000. Therefore the amount taxable under
the head Profit & Gains from Business will be (500000
– 200000) Rs. 3,00,000.

10.  Inter-head means when a loss remains
unabsorbed from inter-source set-off, the
balance of it can be set-off against income
under other head of income.
 Where the net result of computation made
for any assessment year in respect of any
head of income is a loss, the same can be
set off against the income from other
heads.

11. X has two non speculative businesses A
& B.
Besides he has income from house
property.
Profit From BusinessA Rs. 70000
Loss From Business B Rs. 290000.
Income from House property Rs. 510000
The Net Loss from both businesses of Rs. 220000(290000-70000)
can be set off with House Property income of Rs. 510000.
Therefore the net income taxable is Rs. 290000.

13.  Speculation Loss – Cannot be set off against any
other head.
 Capital Loss - Cannot be set off against any other
head except ‘Capital Gains’.
 Loss from the activity of owning and maintaining
race horses - Cannot be set off against any other
head.
 Business loss cannot be set off with Salary.
 Loss cannot be set off against winnings from
lotteries, crossword puzzles etc.
 Loss from purchase of securities.

14. Type of Loss to be carried
forward to the next year(s)
Income against which carried forward
loss can be set off in next year(s)
Years
HOUSE PROPERTY LOSS INCOME FROM HOUSE PROPERTY 8YEARS.
SPECULATION LOSS SPECULATION PROFITS 4YEARS.
NON SPECULATION BUSINESS LOSS:
Unabsorbed Depreciation, Scientific
Research & Family Planning
Expenditure
ANY INCOME NOTIME
LIMIT
Other Business Losses SPECULATIVE AND NON SPECULATIVE 8YEARS
SHORTTERM CAPITAL LOSS SHORT AND LONG TERM GAINS 8YEARS
LONG TERM CAPITAL LOSS LONG TERM CAPITAL GAINS 8YEARS
LOSS FROM ACTIVITY OF OWNING &
MAINTAINING RACE HORSES
INCOME FROM SUCH ACTIVITY 4YEARS