Loss under the Head of PGBP
Introduction
Business losses may arise as speculative, non-speculative, or specified business losses. Provisions regulate the set-off against other incomes and the carry-forward period for unadjusted losses.
Set-off and Carry-forward of Losses
- Set-off:Adjusting losses against income in the same assessment year.
o Intra-head Adjustment: Loss from one business source of income can be set off against income from another source under the same head.
Exceptions:
Speculative losses: Only adjusted against speculative profits.
Specified business losses (Section 35AD): Adjusted only against profits from other specified businesses.
Losses under concessional tax regimes (Sections 115BAA, 115BAC, etc.): Not allowed if linked to disallowed deductions.
Note: However, normal business losses can be set off against income from a speculative business or a specified business.
o Inter-head Adjustment: Loss under business or profession can be adjusted against other heads except:
Speculative losses and specified business losses cannot be set-off against income taxable under any other head.
Losses under concessional tax regimes (Sections 115BAA, 115BAC, etc.): Not allowed if linked to disallowed deductions.
- Carry-forward:Unadjusted losses are carried forward to future years for set-off against eligible income:
o Non-speculative Losses: Set off against any business income within 8 years.
Exceptions: The time limit of 8 years to set-off the carried forward losses does not apply in the following three circumstances:
- Unabsorbed depreciation and unabsorbed capital expenditure on scientific research or family planning can be carried forward indefinitely until fully set off.
- If an industrial undertaking is discontinued due to calamities (like flood, fire, war, etc.), losses can be set off in the year it is revived—provided revival occurs within 3 years of discontinuation. If profits are insufficient, the loss can be set off against other business income of that year. Unabsorbed losses can be carried forward for 7 assessment years from the year of revival.
o Speculative Losses: Only against speculative profits within 4 years.
o Specified Business Losses: Indefinitely carried forward until set off against specified business profits.
Restrictions
Business losses and unabsorbed depreciation cannot be set off against:
- Salary income
- Undisclosed income or unexplained income (Sections 79A,115BBE)
- Income from virtual digital assets, gambling, winnings from online games, or specified trust incomes.
Preconditions for Carry-forward
- Same Assessee:Losses can be carried forward only by the taxpayer who incurred them, except in cases of inheritance, amalgamation, demerger, or specific reorganisations.
- Timely Return Filing:Returns must be filed on or before the due date to claim carry-forward rights, barring exceptions like unabsorbed depreciation.
Order of Set-off
Set off in the following sequence:
- Current year’s expenses (e.g., scientific research, family planning)
- Current year’s depreciation
- Current year’s business loss
- Brought forward business losses
- Unabsorbed expenditure on family planning
- Unabsorbed depreciation
- Unabsorbed capital expenditure on scientific research