Rules of Carry Forward & Set of Losses under Income Tax Law

by Ram Dutt Sharma

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CHAPTER 1

Introduction

The Character of loss	1
What is loss in income-tax?	1
Meaning of Set-off and Carry forward	1
Tabular Summary for adjustments of loss	2
Table Showing Set-off and Carry Forward of Losses	3

CHAPTER 2

Loss Under ''Income from House Property''

Loss Under ''Income from House Property	6
Loss from house property can be carried forward even if the return is not filed within the due date	7
Loss can be carried forward by the assessee who incurred the loss	7
Carry forward and set-off of house property loss	7
Process of setting off of loss and carry forward	8
Restriction on set-off of loss from house property[Section 71(3A)]	10
Provisions in brief: Set-off & Carry Forward of Losses	11

CHAPTER 3

Business Losses Deductible Under Income Tax

Qualifying conditions:	13

CHAPTER 4

Loss on Account of Embezzlement by an Employee	16

CHAPTER 5

Loss on Account of Robbery,Theft,Dacoity,etc

Conditions for claiming losses on account of robbery,theft,dacoity,etc	20
Year in which deductible	20

CHAPTER 6

Loss Due to Fire	24

CHAPTER 7

Loss Arising on Account of Fluctuation of Foreign Exchange Rate

Meaning of 'Foreign Exchange'(FX)	27
Income Tax implications of foreign exchange variations	28
Taxation of foreign exchange fluctuation	28

CHAPTER 8

Loss from Exempted Source of Income	32

CHAPTER 9

Business Losses not Allowable Under Income Tax

Expenses after business set-up allowable even if business not commenced	37

CHAPTER 10

Carry Forward and Set-off of Unabsorbed Depreciation[section 32(2)]

Meaning of unabsorbed depreciation	40
Unabsorbed depreciation can be carried forward for an indefinite period	40
Legal position of current and brought forward unadjusted/unabsorbed depreciation allowance	41
Table Showing Set-off and Carry Forward of Unabsorbed Depreciation	42
Carry Forward and Set-off of Unabsorbed Depreciation[Section 32(2)] for Computing Profits and Gains of Business or Profession	42
Priority of Set-off	43

CHAPTER 11

Set-off of Loss from One Source Against Income from Another Source Under the Same Head Income[Section 70]

Setting off of losses	56
Section 70(3)	57
Exceptions in provisions of section 70	58

CHAPTER 12

Set-off of Loss from One Head Against Income from Another[section 71]

Meaning of intra-head adjustment	79
Restriction on set-off of loss from house property[Section 71(3A)	81

CHAPTER 13

Setting off of Carried Forward Losses of Earlier Years

Intra-head set-off	90
Intra-head set-off	90

CHAPTER 14

Transitional Provisions for Set-off of Loss Under the Head "Income from House Property"[section 71A]	91

CHAPTER 15

Carry Forward and Set-off of Loss from House Property[section 71B]

Carry forward and Set-off of brought forward losses	93

CHAPTER 16

Carry forward and Set-off of Business Losses[section 72]

Carry forward and Set-off of brought forward losses	95
Brought forward business losses can be adjusted only against business income	96
Business in respect of which a loss is incurred may or may not be continued	97
Losses can be set-off only by the assessee who has incurred loss [section 78(2)]	97
Business need not be continued	98
Return of Loss	98
Business losses deductible/not deductible under the head 'Profits and Gains of Business or Profession'	98
Order of set-off of business losses[Section 72(2)]	99
When the period of 8 years of carry forward and st-off of loss does not apply	100

CHAPTER 17

Provisions Relating to Carry Forward and Set-off of Accumulated Loss and Unabsorbed Depreciation Allowance in Amalgamation or Demerger,etc.[section 72A]

Carry forward of accumulated loss and/or unabsorbed depreciation (section 72A)	131
Reorganisation in case of firm/proprietorship to company and private company/unlisted public company to LLP(section 72A(6))	131
Conditions for carrying forward or set-off of accumulated loss and unabsorbed depreciation allowance in case of amalgamation	132
Conditions precedent for applicability of section 72A of income-tax act	133
Withdrawal of benefit,if the conditions under section 72A(2) are not fulfilled[section 72A(3)]	133
Procedure for representation before BIFR and AAIFR	134

CHAPTER 18

Carry Forward and Set-off Accumulated Loss and Unabsorbed Depreciation Allowance in Scheme of Amalgamation in Certain Cases[section 72aa]	151

CHAPTER 19

Provisions Relating to Carry Forward and Set-off of Accumulated Loss and Unabsorbed Depreciation Allowance in Business Reorganisation of Co-operative Banks[section 72AB]
151

CHAPTER 20

Losses in Speculation Business[section 73]

Transaction not deemed to be speculative transaction	155
Carry forward and Set-off brought forward losses	156

CHAPTER 21

Carry Forward and Set-off of Losses by Specified Business[section 73A]

Loss under Specified Business(Business Under Section 35AD)	162
Double Deduction not allowed	163
Carry forward and Set-off brought forward losses	164
Loss of Section 35AD eligible unit can be set-off against profits of ineligible unit if it is a specified business	164

CHAPTER 22

Losses Under the Haed "Capital Gains"[section 74]

Carry forward and set-off of brought forward losses	168
Mandatory to file timely return of income	168

CHAPTER 23

Losses from Certain Specified Sources Falling Under the Head "Income from other Source"[section 74a]

Carry forward and set-off of brought forward losses	181
Mandatory to file timely return of income	182
Continuity of activity	182
Treatment of other race animals	182

CHAPTER 24

Losses of Firms[sections]	189

CHAPTER 25

Loses of Unregistered Firms Assessed as Registered Firms[sections 76]

loses of unregistered firms assessed as registered firms[sections 76:Omitted by the finance act,1992(18 of 1992),sections 39(with effect from 01.04.1993)]	195

CHAPTER 26

Losses of Unregistered Firms or their Partners[Section 77]

Losses of unregistered firms or their partners,- [section 77:Omitted by the Finance Act,1992(18 of 1992), section 39(with effect from 01.04.1993)]	196

CHAPTER 27

Carry Forward and Set-off of Losses in Case of Change in Constitution of Firm or on Succession[Section 78]	205

CHAPTER 28

Carry Forward and Set-off of Losses in Case of Certain Companies[Section79]

Changes in shareholding pattern	210
Object of Section 79	210
Facilitating strategic disinvestment of public sector companies [section 79 amended w.e.f. assessment year 2022-23]	214
Section 79 of the Act comes into play	215
Substitution of section 79 by the Finance (no.2) Act,2019	215
Background	216
Provisions not to apply to a startup company	217
Certain exceptions to Section 79	217
Amendment introduced for startups in section 79 of the act through finance act,2017[i.e.on or after 01.04.2018]-218 Section 79 of the Act before the amendment by Finance Act,2017[i.e.up to 31.03.2018]	219

CHAPTER 29

No Set off Losses Consensequent to Search,Reuisition and Survey [Section 79a]

Undisclosed Income-Set off & carry forward of losses	233

CHAPTER 30

Submission of Return for losses [section 80]

Submission of return for losses	235
Withdrawal of circulars [CBDT circular no.683,dated 08.06.1994]	236
Return of loss in the case of a sick company [CBDT circular no.576,dated 31.08.1990]	236
effect of order passed by board for industrial and financial reconstruction under scheme for rehabilitation of sick units on determination of losses	237

CHAPTER 31

Losses from Agricultural Operations

Income/loss from agricultural properties cannot be set-off	243

CHAPTER 32

No Set-off of Losses Against Income Referred to in Section 68 or Section 69 or Section 69A or Section 69B or section 69C or Section 69D [Section 115BBE(2)]	244

CHAPTER 33

Loss from one Virtual Digital Asset(VDA)cannot be Set-off Against Income from Another VDA[Section 115BBH(2)(b)]	247

CHAPTER 34

Filing Return of Loss[Section 139(3)read with Section 80]
249

CHAPTER 35

Intimation of Loss[Section 157]

Losses under the head ''Capitals gains''	259

CHAPTER 36

Allowability of Losses Incurred for Earning Illegal Income Under the Income Tax Act
267

CHAPTER 37

Important Forms

FORM NO 62	279

About the Author

Ram Dutt Sharma

Ram Dutt Sharma was born on 27th June, 1958 in Narnaul, Haryana. He got his post-graduation from M.D. University, Rohtak in 1980. He joined the Income-tax Department in the year 1983 and retired as Income Tax Officer on 30.06.2018. He worked at various stations of North-West Region of Income-tax Department. He has wide experience of all wings of Income-tax Department such as Assessment Unit, Special Range, TDS Wing, Investigation Wing, etc. He has been Contributing articles and addressing on topics relating to Income Tax at NADT Regional Campus, Chandigarh & Bhopal. He has also addressed number of seminars organized by the Income-tax Department, Chartered Accountants, Advocates and various Trade Associations.

He is recipient of first-ever Finance Minister's Award 2017, the Income Tax Departments highest honour for sustained devotion, commitment to duty & promoting excellence in the field of Direct Taxation at National Level. The Hon'ble Union Finance Minister, Shri ArunJaitley conferred this Finance Ministers Award for Excellence for his meritorious services at VigyanBhawan, New Delhi on 24.07.2017.

Awarded by Hon'ble Member (Revenue& TPS), CBT, Special Secretary to the Government of India Certificate of Appreciation for his contribution recognized and included in the chapter Miscellaneous Orders in Let Us Share A compilation of Best Practices & Orders Vol. VIII released on 31stOctober, 2016.

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