A loss which could not be set off within the same head of income shall be allowed to be set off out of the income of any other head in the same assessment year but subject to certain exceptions. Let us take the following examples to understand this:
Example 1. Any loss under the head house property can be set-off against income under the head 'salary’
Example 2. Loss under the head of Business or Profession can be set-off against income under the head house property.
(i) Speculation Loss
Any loss computed in respect of speculation business carried on by the assessee shall not be set-off except against profits and gains, if any, of another speculation business. In other words, speculation business loss can be set-off only against speculation business income. It cannot be set-off against any non-speculation business However, non-speculation business loss can also be set-off against speculation business income. Loss in trading in derivatives is to be treated as a non-speculation business loss and not as speculation business.
The business of purchase and sale of shares carried on by a company shall not be deemed as a speculation business, if the principal business of such company is the business of trading in shares
(ii) Expenses on maintenance of horses for race purposes
Loss from owning and maintenance of horses shall be set-off only out of the income from owning and maintenance of horses. This means that loss from the activity of owning and maintaining race horses cannot be set-off against any other income falling under the head 'Other Sources
(iii) Loss under the head Capital Gains
Short Term Capital Loss can be set off from income under short-term capital gains or from long-term capital gain but Long Term Capital Loss can be set off only from long-term capital gain. If any capital loss or part of a loss remains unadjusted then such loss shall be allowed to be carry forward to be set off out of income under the head capital gains only in future years. Long Term Capital Gain on sale of long term asset of shares on which STT has been paid is exempt from tax u/s 10(38), hence long term capital loss on sale of such shares cannot be set-off out of any other long term capital gain and so such loss is to be ignored.
(iv) Business loss not to be set off from salary income (Section 71(2A)]
With effect from the 1st day of April, 2005 wherein respect of any assessment year, the net result of the computation under the head "Profits and gains of business or profession” is a loss and the assessee has income assessable under the head "Salaries", the assessee shall not be entitled to have such loss set off against such income'. It simply means that loss under the head "Profits and Gains of Business or Profession" cannot be set off from income under the head "Salaries".
(v) Ceiling on set-off of house property loss against income of any other head [Insertion of section 71(3A)]
Set off of loss under the head "Income from house property" against any other head of income shall be restricted to 2,00,000 for any assessment year.
(vi) Set off of losses from casual incomes falling u/s 56(2)(ib)
Loss from any source or under any head cannot be set off from casual incomes such as lottery, race winnings, winnings from crossword puzzles, card games, gambling etc.
(vil) Loss in respect of casual incomes falling under section 56(2) (ib)
Any loss on account of lottery, gambling, betting, races (including horse races), game shows or other games of any sort cannot be set-off against income of any other head. In fact, such a loss cannot be set-off at all.
(viii) Loss from a source whose income is exempted
If a person has loss from a source of income which is exempted under any provision of this Act, such loss cannot be set off out of taxable income if any other head.
(ix) Share of loss from Firm/AOP
Share of loss from a firm assessed u/s 184 or 185 or from an association of persons cannot be set off from the individual income of partners/members.
(x) No set-off of loss against deemed incomes referred to in sections 68, 69, 69A, 69B, 69C or 69D. [Amendment to Section 115BBE(2)]
Set off of any loss shall also be not allowable in respect of incomes under the aforesaid sections.
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