Set-off and Carry Forward of Losses
Introduction
Set-off means adjustment of losses against the profits from another source/head of income in the same assessment year. If losses cannot be set-off in the same year due to inadequacy of eligible profits, then such losses are carried forward to the next assessment year for adjustment against the eligible profits of that year.
Set-off of Losses
- Intra-head Adjustment: Loss from one source of income can be set-off against income from another source under the same head (e.g., loss from one house property against income from another house property).
- Inter-head Adjustment: Residual losses after intra-head adjustment can be set-off against income under other heads (e.g., house property loss against business income).
Carry Forward of Losses
- Losses that cannot be set off in the current year may be carried forward for adjustment in subsequent years, subject to certain conditions:
o Eligible Losses for Carry Forward (for a specified number of years):
House property loss
Business/profession loss
Capital gains loss
Income from other sources
o Unlimited Carry Forward: Unabsorbed depreciation, as well as losses arising from unabsorbed capital expenditure on scientific research or family planning.
Restrictions on Set-off and Carry Forward of Losses
- Undisclosed Income: Losses cannot be set-off against undisclosed income detected during search/survey/requisition.
- Virtual Digital Assets (VDAs): Loss from VDAs cannot be set-off against other income or even income from other VDAs and vice-versa.
- Unexplained Income: Losses cannot be set-off against income taxable underSection 115BBE.
- Specified Income of Trusts/Institutions: Any trust, fund or institution referred underSection 10(23C)(iv) to (via) or Section 11 cannot set off any loss against income taxable under Section 115BBI.
- Gambling Losses: Losses from gambling activities cannot be set-off against any income and vice-versa.
Special Provisions
- Concessional Tax Regimes:
o Assessee opting for concessional tax regimes is required to forgo specified exemptions and deductions. Consequently, any losses or unabsorbed depreciation attributable to such deductions cannot be set off or carried forward. Only the balance loss, if any, will be allowed to be carried forward and set off.