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Set off and carry forward losses

Ganesh Jagadeesh & Co

The manner and process of setting-off of losses and the subsequent carry forward of balance losses flow in the following manner:

INTER SOURCE ADJUSTMENT
Adjustment of loss from one source against income from another source within the same head of income within the same year.

INTER HEAD ADJUSTMENT
Adjustment of loss under one head against income from another head of income within the same year.

CARRY FORWARD OF LOSSES
The balance loss after the above two adjustments are carried forward to the subsequent assessment year.

However, all the above are subject to certain conditions which have been presented in a nutshell.

	For the Current Assessment Year		For Subsequent Assessment Year
Type of loss	Inter source Adjustment (Sec 70) (same head of Income)	Inter Head Adjustment (Sec 71) (Different heads of Income)	Carry Forward of Losses and for how many years	Profit/Income against which carried forward loss can be Set off in subsequent year(s)	Should the business/ activity continue	Is it necessary to submit return of loss in time in accordance with Sec 139(1)
House Property (Sec 71B)	Allowed	Allowed	Allowed for 8 Years	Income under the head "Income From house Property"	N.A.	No
Capital Gains	Allowed (Short Term Capital Losses can be Set Off Against Long Term Capital Gains and Vice Versa)	Not Allowed	Allowed for 8 Years	Any Income under the head "Capital Gains" (Short Term Capital Losses can be Set Off Against Long Term Capital Gains and Vice Versa)	Not Necessary	Yes
Income From Other Sources (Other than Loss from activity of owing and maintaining race horses	Allowed (Losses cannot be set off against winnings from lotteries, crossword puzzles etc.)	Allowed	Allowed	N.A.	N.A.	No
Loss from the activity of owing and maintaining race horses (Sec 74A)	Allowed only against income from the activity of owing and maintaining race horses	Not Allowed	Allowed for 4 years	Loss from activity of owing and maintaining race horses can be set off only against income from activity of owing and maintaining race horses	Yes	Yes
Speculation Loss (Sec 73)	Allowed only against Speculation profits	Not Allowed	Allowed for 8 years	Speculation Losses can be set off only against Speculation Profits	Not necessary	Yes

• No loss can be set off against winnings from lotteries, crossword puzzles, races including horse race, card games and other games of any sort or from gambling or betting of any form or nature --- Section 58(4).
• Loss from non-speculation business can be set off against speculation or non-speculation business.

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