Inter-Head Adjustment of Losses
Introduction
Inter-head adjustment allows for the set-off of losses from one head of income against income from another head within the same assessment year. Certain exceptions apply, such as capital losses being adjustable only against capital gains.
Rules for Inter-Head Adjustment
- House Property Losses:
o Losses from house property can be set-off against income under any other head.
o Exceptions:
Loss exceeding Rs. 2 lakhs cannot be set-off in the current year; the excess loss is allowed to be carried forward.
Losses cannot be set-off against specified incomes, such as undisclosed income (Section 79A), gambling winnings (Section 115BB), unexplained income (Section 115BBE), virtual digital assets (Section 115BBH), specified trust/institution income (Section 115BBI) or winning from online game (115BBJ).
No set-off allowed to assessee under the concessional tax regime (Section 115BAC).
- Business or Profession Losses:
o Losses from business or profession or unabsorbed depreciation can be set-off against any income under any head.
o Exceptions:
Speculation losses can only be adjusted against speculation income.
Losses from specified business (Section 35AD) can only be adjusted against profits of other specified businesses.
Salary income cannot absorb business losses.
Losses cannot be set-off against certain incomes (e.g., gambling winnings, virtual digital assets, unexplained income).
- Capital Losses:
o Losses from capital gains (short-term or long-term) cannot be adjusted against income from other heads.
o Special Rule: Loss from the transfer of virtual digital assets is not adjustable against any income, making it a dead loss.