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set off of business loss

FATEMA (CHARTERED ACCOUNTANT) (719 Points)

27 January 2010

We can carry forward the business loss upto 8 years and once we carry forward the business loss, it can be set off against business income only in the subsequent years. Now suppose if the business closes down before the expiry of 8 years and there is no income to be chraged to tax under the head PGBP,what will happen to the loss?Will the asessee loose the loss?

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14 Replies

Amir (Learner) (4016 Points)
Replied 27 January 2010

Dear Fatema,

Yes u r rite if assessee has no income under PGBP for 8 A/Y's then the amount of carried forward loss will be lapsed.

But loss of 1 business can be setoff with the loss of other business (except in case of speculation)

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FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 27 January 2010

Thanks.I just wanted to confirm about the lapsing of the loss.

Amir (Learner) (4016 Points)
Replied 27 January 2010

Dear Fatema,

U r welcome,

Just want to add that the New Direct Tax code seeks to address this hardship where Losses can be carried forwrd for indefinate period.

Max Payne (employed) (2574 Points)
Replied 27 January 2010

Originally posted by : FATEMA
	We can carry forward the business loss upto 8 years and once we carry forward the business loss, it can be set off against business income only in the subsequent years. Now suppose if the business closes down before the expiry of 8 years and there is no income to be chraged to tax under the head PGBP,what will happen to the loss?Will the asessee loose the loss?

Yes fatema, ordinarily it will be lost.

However, if the assessee is having deemed profits under section 41, he will be able to claim the loss of the discontinued business incurred in the year of discontinuing the business, even if the profit arises after 8 years.

So we can use section 41(5), where section 72 period has expired.

Amir (Learner) (4016 Points)
Replied 27 January 2010

Dear Fatema,

Agree with G.K., Sec 41(5) is an exception.

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FATEMA (CHARTERED ACCOUNTANT) (719 Points)
Replied 27 January 2010

What is sec 41(5) about?I only know about Sec 41(1), (2), (3), (4) and (4A).

Amir (Learner) (4016 Points)
Replied 27 January 2010

Dear Fatema,

Sec, 41(5) reads as follows:-

Where the business or profession referred to in this section is no longer in existence and there is income chargeable to tax under sub-section (1), 28[***] sub-section (3) 29[, sub-section (4) or sub-section (4A)] in respect of that business or profession, any loss, not being a loss sustained in speculation business 30[***], which arose in that business or profession during the previous year in which it ceased to exist and which could not be set off against any other income of that previous year shall, so far as may be, be set off against the income chargeable to tax under the sub-sections aforesaid

RADHIKA JALAN (agarwal) (1521 Points)
Replied 27 January 2010

amit is right............

Neha (Article) (118 Points)
Replied 27 January 2010

Dear Fatema & Amir...

As far as I have read Sec 41.....Dere's sec41(2) regarding "Balancing Charge"

Can u plz tell me whether we can set off business losses against the income u/s 41(2) too after discontinuation of business??

What I have read, dat ds nt include this section inome to be used for setting off losses..

Amir (Learner) (4016 Points)
Replied 27 January 2010

Dear Neha,

Subsection (2) i:e "Balancing Charge" is not therein Sec 41(5), therefore it cannot be done.

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Max Payne (employed) (2574 Points)
Replied 27 January 2010

Originally posted by : Neha Babbar
	Dear Fatema & Amir... As far as I have read Sec 41.....Dere's sec41(2) regarding "Balancing Charge" Can u plz tell me whether we can set off business losses against the income u/s 41(2) too after discontinuation of business?? What I have read, dat ds nt include this section inome to be used for setting off losses..