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Set off of current year STCG against b/f unabsorbed dep.

Vishnu Maheshwari (student) (88 Points)

28 July 2009

Whether I can set off of my current year STCG against b/f unabsorbed depreciation?

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22 Replies

Anumanchipalli Sathikonda (Tax Consultant) (1559 Points)
Replied 28 July 2009

Mr.Vishnu Maheshwari

You cannot set off the STCG against b/f unabsorbed depreciation.

Please refer section 74 of the Income-tax Act.

Best Wishes

Sathikonda

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Max Payne (employed) (2574 Points)
Replied 28 July 2009

Hi iam giving the provisions of section 32 here.

Mr. Sathikonda is correct.

But ICAI materials and coaching classes are giving the concept that Unabsorbed depreciation can be carried forward indefinitely and set off against any income.

But it can be carried forward only 8 years, and it brought forward unabsorbed depreciation can be set off against only PGBP. But in the year of incurring the Unabsorbed depreciation, we can set it off against ANY HEAD of income

(2) Where in the assessment of the assessee full effect cannot be given to any allowance under clause (ii) of sub-section (1) in any previous year owing to there being no profits or gains chargeable for that previous year or owing to the profits or gains being less than the allowance, then, the allowance or the part of allowance to which effect has not been given (hereinafter referred to as unabsorbed depreciation allowance), as the case may be, - (i) Shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year;

(ii) If the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year;

(iii) If the unabsorbed depreciation allowance cannot be wholly set off under clause (i) and clause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year and - (a) It shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year;

(b) If the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed :

Provided that the business or profession for which the allowance was originally computed continued to be carried on by him in the previous year relevant for that assessment year :

Provided further that the time limit of eight assessment years specified in sub-clause (b) shall not apply in the case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses.

Explanation : For the purposes of this clause, "net worth" shall have the meaning assigned to it in clause (ga) of sub-section (1) of section 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986).

Max Payne (employed) (2574 Points)
Replied 28 July 2009

means first we can set off against that business' profit and gain,

second with the PGBP of any other business of that year, and third against any other income of the year.

Then we have the carry forward option for 8 years, and it can be set off against the PGBP of the business to which the depreciation relates.

Jatin Nigam (Chartered Accountant) (54 Points)
Replied 28 July 2009

No as per me , I dont think that act allow set off current stcg against b/f bussiness losses , however going to sec32 bf unabsorbed depricaiation can be set off aginst bussiness income upto 8 years.

Jatin Nigam (Chartered Accountant) (54 Points)
Replied 28 July 2009

No as per me , I dont think that act allow set off current stcg against b/f bussiness losses , however going to sec32 bf unabsorbed depricaiation can be set off aginst bussiness income upto 8 years.

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Anumanchipalli Sathikonda (Tax Consultant) (1559 Points)
Replied 29 July 2009

Hello All

Unabsorbed depreciation cannot be set off against capital gains. The restriction is for the reason that capital gains are taxed seperately at a specific rate exclusive of income from other heads. Please refer section 112.[Tax on long-term capital gains.

⁵¹112. (1) Where the total income of an assessee includes any income, arising from the transfer of a long-term capital asset, which is chargeable under the head Capital gains, the tax payable by the assessee on the total income shall be the aggregate of,

(a) in the case of an individual or a Hindu undivided family, ⁵²[being a resident,]

(i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been his total income ; and

(ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent :

Provided that where the total income as reduced by such long-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the rate of twenty per cent ;

(b) in the case of a ⁵²[domestic] company,

(i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and

(ii) the amount of income-tax calculated on such long-term capital gains at the rate of ⁵³[twenty] per cent :

⁵⁴[***]

⁵⁵[(c) in the case of a non-resident (not being a company) or a foreign company,

(i) the amount of income-tax payable on the total income as reduced by the amount of such long-term capital gains, had the total income as so reduced been its total income ; and

(ii) the amount of income-tax calculated on such long-term capital gains at the rate of twenty per cent ;]

⁵⁶[(d)] in any other case ⁵⁷[of a resident],

(i) the amount of income-tax payable on the total income as reduced by the amount of long-term capital gains, had the total income as so reduced been its total income ; and

(ii) the amount of income-tax calculated on such long-term capital gains at the rate of ⁵⁸[twenty] per cent.

Explanation.⁵⁹[***]

⁶⁰[Provided that where the tax payable in respect of any income arising from the transfer of a long-term capital asset, being listed securities ⁶¹[or unit] ⁶²[or zero coupon bond], exceeds ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee.

⁶³[Explanation.For the purposes of this sub-section,

(a) listed securities means the securities

(i) as defined in clause (h) of section 2⁶⁴ of the Securities Contracts (Regulation) Act, 1956 (32 of 1956); and

(ii) listed in any recognised stock exchange in India;

(b) unit shall have the meaning assigned to it in clause (b) of Explanation to section 115AB.]]

(2) Where the gross total income of an assessee includes any income arising from the transfer of a long-term capital asset, the gross total income shall be reduced by the amount of such income and the deduction under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(3) Where the total income of an assessee includes any income arising from the transfer of a long-term capital asset, the total income shall be reduced by the amount of such income and the rebate under section 88 shall be allowed from the income-tax on the total income as so reduced.

Hope that all of you have get the clarification.

Best Wishes

Sathikonda

Anumanchipalli Sathikonda (Tax Consultant) (1559 Points)
Replied 29 July 2009

Please also refer section 111A also.Tax on short term capital gains in certain cases.

111A. (1) Where the total income of an assessee includes any income chargeable under the head Capital gains, arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and

(a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and

(b) such transaction is chargeable to securities transaction tax under that Chapter,

the tax payable by the assessee on the total income shall be the aggregate of

(i) the amount of income-tax calculated on such short-term capital gains at the rate of ^49a[ten] per cent; and

(ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee:

Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of ten per cent.

(2) Where the gross total income of an assessee includes any short term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains.

(3) Where the total income of an assessee includes any short term capital gains referred to in sub-section (1), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains.

Explanation.For the purposes of this section, the expression equity oriented fund shall have the meaning assigned to it in the Explanation to clause (38) of section 10.]

Ritesh (CA Final) (326 Points)
Replied 29 July 2009

I beg to differ

As per Sec 32(2), Unabsorbed De[preciation can be carried forward indefinitely & can be set off against Capital Gains also.

Sangam (CA) (1329 Points)
Replied 29 July 2009

Originally posted by :Ritesh
"	I beg to differ As per Sec 32(2), Unabsorbed De[preciation can be carried forward indefinitely & can be set off against Capital Gains also.	"

ya i agree with this

it can b carried forward indefinitely and can b set off

but cant b set offf against salary income ..

Kailash Sharma (CA- Final Student) (148 Points)
Replied 29 July 2009

It can de sett off from any Income maybe House property or Capital Gains.

and also it can be carried forward to 'n' number of years.

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Max Payne (employed) (2574 Points)
Replied 29 July 2009

Originally posted by :sathikonda anumanchipalli
"	Please also refer section 111A also.Tax on short term capital gains in certain cases. 111A. (1) Where the total income of an assessee includes any income chargeable under the head Capital gains, arising from the transfer of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund and (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2) Act, 2004 comes into force; and (b) such transaction is chargeable to securities transaction tax under that Chapter, the tax payable by the assessee on the total income shall be the aggregate of (i) the amount of income-tax calculated on such short-term capital gains at the rate of 49a[ten] per cent; and (ii) the amount of income-tax payable on the balance amount of the total income as if such balance amount were the total income of the assessee: Provided that in the case of an individual or a Hindu undivided family, being a resident, where the total income as reduced by such short-term capital gains is below the maximum amount which is not chargeable to income-tax, then, such short-term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of such short-term capital gains shall be computed at the rate of ten per cent. (2) Where the gross total income of an assessee includes any short term capital gains referred to in sub-section (1), the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such capital gains. (3) Where the total income of an assessee includes any short term capital gains referred to in sub-section (1), the rebate under section 88 shall be allowed from the income-tax on the total income as reduced by such capital gains. Explanation.For the purposes of this section, the expression equity oriented fund shall have the meaning assigned to it in the Explanation to clause (38) of section 10.]	"

This still leaves out STCG taxable at normal rates.

Amendment to the provisio - the balance is to be taxed @ 15%

But current year, we can claim against LTCG for sure cos section 32 says "(ii) If the unabsorbed depreciation allowance cannot be wholly set off under clause (i), the amount not so set off shall be set off from the income under any other head, if any, assessable for that assessment year;"

Max Payne (employed) (2574 Points)
Replied 29 July 2009

i am sorry i quoted from an old source. It has been much amended - (this wasn't what i learnt for my exams so this source was kinda freaky and shocking in a way - thats what made me want to quote it here for all of us. Sorry!) Note to self: do not refer vakilno1.com for income tax. Use Taxmann Now subject to section 72(2) [loss from business] and 73(3)[speculative business] brought forward unabs depreciation canbe set off against any income. This means carry it forward indefinitely and set it off against any income (thats what i learnt too!) Also sangam bhai, for exams we study that it cant be set off against salary, but there is an opinion that we are talking about an "allowance", not a deduction or item of expenditure - so we are at liberty to claim the Unabsorbed depreciation against salary also. Sorry for the confusion.