Carry Forward of Losses
Introduction
When losses cannot be fully set off within the same year due to inadequate eligible profits, they may be carried forward to subsequent assessment years for adjustment against eligible profits under the same income head. This ensures taxpayers can efficiently manage losses over time.
Key Provisions for Carry Forward of Losses
- Losses Eligible for Carry Forward:
o House Property Losses: Unadjusted losses can be carried forward for 8 years.
o Speculative Losses: Can only be adjusted against speculative income within 4 subsequent years.
o Non-Speculative Business Losses: Can be carried forward for 8 years.
o Losses from Specified Businesses (Section 35AD): Carried forward indefinitely.
o Capital Losses: Short-term or long-term losses carried forward for 8 years.
o Losses from Owning and Maintaining Race Horses: Carried forward for 4 years.
- Conditions for Carry Forward:
o Assessees under concessional tax regimes (Sections 115BA, 115BAC, etc.) cannot carry forward losses and unabsorbed depreciation attributable to deductions not allowed under such regimes.
- Transferability of Losses:
o Losses can generally be carried forward by the original assessee.
o Exceptions:
Inheritance: A successor by inheritance can carry forward the predecessor’s losses, subject to the remaining period within the 8-year limit from the year the loss was first incurred.
Amalgamation or Demerger: Subject to conditions under Sections 72A and 72AA losses and unabsorbed depreciation can be carried forward by amalgamated or resulting companies.
Business Reorganization: In cases of reorganization referred under Sections 47(xiii), (xiv), and (xiiib), the successor entity can carry forward the predecessor’s losses. For reorganizations occurring on or after April 1, 2025, such losses can be carried forward for 8 assessment years from the year following the one in which the loss was originally incurred by the predecessor.
Business Reorganization of Co-operative Banks: The successor co-operative bank can set off the accumulated loss and unabsorbed depreciation of the predecessor, provided conditions under Section 72AB are satisfied. If any condition is violated, the previously allowed set-off is deemed income of the year of non-compliance.
- Mandatory Filing of Returns:
o Losses can only be carried forward if the income tax return is filed within the due date of return filing.
o Exceptions: House property losses and unabsorbed depreciation can be carried forward even if the return is filed after the due date.
- Condonation of Delay:
o CBDT has prescribed circumstances under which delay in filing returns may be condoned, allowing carry forward of losses despite late filing:
Principal CIT/CIT: Empowered to accept/reject condonation requests if the amount involved does not exceed Rs. 1 crore per assessment year.
Chief CIT: Authorized for cases involving amounts above Rs. 1 crore and up to Rs. 3 crore.
Principal Chief CIT: Empowered for cases involving amounts exceeding Rs. 3 crore.
o Applications for condonation must be filed within the 6 years from the relevant assessment year. Further, the condonation application should be disposed of within 6 months from the end of the month in which the application is received by the competent authority, as far as possible.