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SET OFF AND CARRY FORWARD OF LOSSES

SET OFF AND CARRY FORWARD OF LOSSES. Mode of Carry Forward & Set off. Inter – source adjustment under the head of income (intra head adjustment) Inter – head adjustment in the same assessment year. Carry forward of loss. Inter Source Adjustment (Sec 70 ).

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SET OFF AND CARRY FORWARD OF LOSSES

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  1. SET OFF AND CARRY FORWARD OF LOSSES www.SafeEcollege.com

  2. Mode of Carry Forward & Set off • Inter – source adjustment under the head of income (intra head adjustment) • Inter – head adjustment in the same assessment year. • Carry forward of loss. www.SafeEcollege.com

  3. Inter Source Adjustment (Sec 70 ) 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 source under head of income for the same assessment year. www.SafeEcollege.com

  4. Example The Loss of Rs. 200000 can be set off with his Profit of Rs. 500000. Therefore the amount taxable under the head Profit & Gains from Business will be (500000 – 200000) Rs. 300000. www.SafeEcollege.com

  5. Rules • SHORT TERM AND LONG TERM CAPITAL GAINS www.SafeEcollege.com

  6. www.SafeEcollege.com

  7. Inter Head Adjustment (Sec 71) 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. www.SafeEcollege.com

  8. Example 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. www.SafeEcollege.com

  9. Rules www.SafeEcollege.com

  10. Exceptions • 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. www.SafeEcollege.com

  11. Carry Forward of Losses The following losses can be carried forward: - • Loss under the head “Income from House Property”. • Loss under the head “Profits and Gains from Business or Profession”. • Loss under the head “Capital Gains”. • Loss from the activity of owning and maintaining race horses. www.SafeEcollege.com

  12. Carry forward of Bussiness loss other than Speculative loss • Loss can be set off only against business income. • Losses can be carried forward by the person who incurred the loss. • Loss can be carried forward for 8 years. • Return of loss should be submitted in time. • Continuity of business not necessary. • Carry forward of unabsorbed depreciation, capital expenditure on scientific research and family planning expenses. www.SafeEcollege.com

  13. Speculation Bussiness www.SafeEcollege.com

  14. Carry Forward of speculative Losses • Speculative loss can be set off only against speculative income. • Can be carried forward for 4 years. • Continuity of Business is not necessary. • Return of Loss should be submitted in time. www.SafeEcollege.com

  15. Carry Forward of Capital Losses • Long term capital loss can be set off only against long term capital gains. • Short term can be set off against short term or long term capital gains. • Such loss can be carried forward for 8 assessment years immediately succeeding the assessment year in which the loss was first computed. • Such loss can be carried forward unless return is filed within the time limit of the section. www.SafeEcollege.com

  16. Carry forward and set off of loss from the activity of Owing & Maintianence of Race Horses • Loss from such activities can be carried forward to a subsequent year and set off only against income from the business of owning and maintaining race horses. • Loss can be carried forward for four assessment years immediately succeeding the assessment year in which the loss was first computed. • Such loss cannot be carried forward unless return is filed within the time limit of section 139(1). www.SafeEcollege.com

  17. Carry forward and loss of House Property • Loss can be carried forward for eight assessment years. www.SafeEcollege.com

  18. Example • Income from House I – 60000 • Loss from House II – (30000) NET INCOME 30000 He has brought forward losses H1 (98-99) 30000, H2 (2001-02) 35000 • 98-99 H1 loss will be ignored. • Loss of 01-02 will be adjusted with 30000. • Therefore 5000 will be carried forward. www.SafeEcollege.com

  19. Provisions in Brief www.SafeEcollege.com

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