Clubbing off Income And Set off and Carry Forward of Losses

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1. Presentation By Basavanagouda Research Scholar Department of Commerce, CUK CLUBBING OF INCOME AND SET OFF AND CARRY FORWARD OF LOSSES

2. CLUBBING OF INCOME Section 60 to section 65 Income of the other person is included in the income of the assesses

3. INCOME INCLUDES LOSS The income mentioned under section 64 (1) and section 64 (2) would also include loss as per explanations given. Cases wherein the specified income derived is a loss then such loss should be taken into account while calculating the total income of the individual.

4. Inter Source adjustment (Section 70) Inter Head adjustment (Section 71) CARRY FORWARD OF BUSINESS LOSSES (SECTION 72 AND SECTION 80)

5. Steps to Set off of losses Step1: Intra source adjustment Step2: Inter–head Adjustment Step3: Carry forward of loss only if a loss cannot be set of under Step1 and step 2 However, Inter source set off is not permissible under following cases Long term capital loss (Section 70(3)) Short term capital loss is allowed to be set off against both the short term capital gain and long term capital gain. However, long term capital loss can be set-off only against long term capital gain.

6. Speculation loss (section 73(1)) Note: Losses from other business can be adjusted against Profits from speculation business. Loss from owning and maintaining of race horses (Section 74 A (3)) Loss from Specified business (Section 73A(1)) Note: Specified Business Specified us Sec 35AD

7. INTER HEAD ADJUSTMENT (Section 71) Loss under one head of income can be adjusted or set off against income under another head. Note: where the net results of the computation under any head of income (other than ‘capital gains’) is a loss, the assesses can set off such loss against his income assessable for that assessment year under any head, including capital gains. Profit and gains of business and profession loss can not be setoff against income from “salaries”. Capital gain loss that loss can not set-off against income under any other head. Maximum loss from house property which can be set-off against income from any other head is Rs. 2 Lakhs . Speculation loss , loss from the activity of owning and maintaining of race horse and loss from specified business (sec 35AD) cannot be set off against income under any other head.

8. SET OFF AND CARRY FORWARD OF LOSSES FROM HOUSE PROPERTY(SEC 71B) Up to 2lakh is set off against any head of income during the same year. Unabsorbed loss will be carried forward to fallowing assessment year to be set off against same head only. Loss can be carried forward up to 8 assessment years immediately succeeding assessment year in which loss was first computed. It is to be Remembered that once particular loss is carried forward , it can be only set off against the income from same head in forthcoming assessment years. SET OFF AND CARRY FORWARD BUSINESS LOSSES (SEC 72 & 80 ) The successor of the business can not carry forward or set off losses of his predecessor except in case succession by inheritance. A business loss can be carried forward for a maximum period of 8 assessment years.

9. Set off and carry forward of accumulated loss and/or unabsorbed Depreciation in Amalgamation (Sec 72A) Conditions to carry forward of losses Company owning an industrial undertaking or ship or a hotel with another company; or Amalgamation of a public sector company or a company engaged in the business of operating aircraft with another public sector company or company engaged in similar business; or Amalgamation of a banking company with a specified bank.

10. Amalgamated company has to fulfill the following conditions to avail the benefit: It continuously holds 75% of the book value of the fixed assets acquired in a scheme of amalgamation for at least five years from the date of amalgamation It continues to carry on business of amalgamating company for at least five years from the date of amalgamation It achieves at least the level of 50% of the installed capacity before the end of 4 years from the date of amalgamation and maintains that level till the 5th year Amalgamating company has to fulfill the following conditions: It was engaged in the business in which the accumulated loss has occurred or the unabsorbed depreciation remains unabsorbed for three or more years. It has continuously held 75% of the book value of fixed assets held by it two years prior to amalgamation.

11. SET OFF AND CARRY FORWARD OF LOSSES IN SPECULATION BUSINESS (SEC 73) Loss from speculation business neither set off in the same year against any other non-speculation income nor can be carried forward and set of against other income in the subsequent years. Speculation business is exclusive area it cannot be set off with any other source of income. SET OFF AND CARRY FORWARD OF LOSSES IN SPECIFIED BUSINESS (SEC 73A) Loss from specified business shall be set off only against profits and gains of other specified business gains only. Losses can be carried forward to indefinite numbers of years for set off against income form specified business only. Return of income is must in case of carry forward of loss under section 139(1)

12. SET OFF AND CARRY FORWARD OF LOSSES ACTIVITY OF OWNING AND MAINTAINING OF RACE HORSES (SEC 74A(3)) Short term capital loss can be set off against any capital gains. Long term capital loss only set off against only long term capital gain only. Net loss under the head capital gains cannot be set off against income under any other head. Any unabsorbed losses can be carried forward to the 8 assessment years. SET OFF AND CARRY FORWARD OF LOSSES CAPITAL GAINS (SEC 74) Losses can be carried forward for a maximum period of 4 assessment years.

13. Order of Set off and carry forward of losses As per the provision of section 72(2) brought forward business loss is to be set-off before setting off unabsorbed depreciation. Therefore the order in which set-off will be effected is as follows. Current year depreciation/Current year capital expenditure on scientific research and current year expenditure on family planning, to the extent allowed. Brought forward loss from business/ Profession (Section 72 (1)) Unabsorbed depreciation (Section 32(2)) Unabsorbed Capital Expenditure on scientific research (section 35(4) ) Unabsorbed capital expenditure on family planning (sec 36 (1) (ix))

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