1

Steps in carry forward and set off o

Step 3
Step 1
Determinat
ion of loss
under each
respective
source of
income

Step 2
Inter
source
adjustmen
t of losses
wherever
allowed
u/s 70

Inter
head
adjustme
nt
wherever
allowed,
where
such
losses are
not fully
set off
under
step 2
Sec. 71

Step 4
C/f of losses
wherever
allowed, where
such
losses
are partly /
fully not set off
under steps 2
and 3 Secs.
71B, 72, 74
C/f and set off
is subject to
anti avoidance
provisions
of
Sec.72A(4),
78, 79, 80,
94(7), 94(8)

Step 5
Carry
forward
and set
off
of
losses in
special
circumstances.
Secs.
72A,
72AA
72AB

&

Set off within one head of income

If net result under one source (within a particular head of income) is
a loss it can be set off against any other source within the same
head
Exceptions
Nature of loss

Can be set off

against

Cannot be set off

against

Loss of speculation Profit of any other Profit of any nonbusiness

speculation business speculation business
Long term capital Any other long term Short term capital gain
loss
capital gain
Loss from business
of
owning
and
maintaining
race
horses

Any
profit
from Any other
business of owning profit
and maintaining race
horses

business

Set off within one head of income

Loss from a source under the

head of

Can be set off against

income from another source
under the head

House property

House property

Non speculative business

Non speculative business

Speculative business

Short term capital loss

Short term capital gain

Long term capital gain

Long term capital loss

Long term capital gain

Loss from other sources

Profit from other sources

Note :

No loss can be set off against winning from lottery, crossword

puzzle etc.

Loss in speculation business can be set off only against profit in

other speculation business.
However, losses from other
businesses can be adjusted against profits from speculation
business.

Loss from an exempt source cannot be set off against profits from
a taxable source of income. For example, long term capital loss
on sale of shares sold through a recognised stock exchange
cannot be set off against long term capital gains on sale of land.

Inter head adjustment Sec. 71

Income under the
head

Can
absorb
loss of

Except the loss of

Salaries

Any head

1.
2.
3.
4.

Any business or profession

Capital loss
Speculation business loss
Loss from business of owning
and maintaining race horses
5. Loss from a source which is
exempt

House property

Any head

1. Capital loss
2. Speculation business loss
3. Loss from business of owning
and maintaining race horses
4. Loss from a source which is
exempt
6

Inter head adjustment Sec. 71

Income under the
head

Can
absorb
loss of

Except the loss of

Business or
profession

Any head

1. Capital loss
2. Speculation business loss
3. Loss from business of owning
and maintaining race horses
4. Loss from a source which is
exempt

Capital gains

Any head

1. Speculation business loss

2. Loss from business of owning
and maintaining race horses
3. Loss from a source which is
exempt

Inter head adjustment Sec. 71

Income under the
head

Can
absorb
loss of

Other sources

Any head

Winning from lottery,

crossword puzzle etc.

No head

Except the loss of

1. Capital loss
2. Speculation business loss
3. Loss from business of owning
and maintaining race horses
4. Loss from a source which is
exempt

Inter head adjustment Sec. 71

Loss under the
head
House property
Business loss
a. Speculation
business

Set off against

income in the year
of loss

Except income
under the head

Any head
Profit from
speculation business
Any head

Salaries

b. Non-speculation
business
Capital loss
a. Short term loss
b. Long term loss

Short term / long

term gain
Long term gain

Other sources
a. Loss from business Profit from business
of owning and
of owning and
maintaining race
maintaining race

Carry forward and set off of loss

Type of loss to be
set off

Set off against in

subsequent years

Perio
d of
carry
forwa
rd

Continu
ity of
source

Timel
y
filing
of
Retur
n

House property
loss
(AY 99-00 onwards)

House property
income only

8
years

No

No

Speculation
4
business profits only years

No

Yes

No

No

Business /
Profession
1. Speculation
loss
2.

Nonspeculation
loss
a. Due to

)
) Any income
) except salaries
) w.e.f. AY 2005-06

No
time

10

Carry forward and set off of loss

Type of loss to be Set off against in Period Continu
set off
subsequent years
of
ity of
carry
source
forwar
d
Capital Gains
1. Short term
capital loss
2. Long term
capital loss

Short term capital

gains
Long term capital
gains

Timel
y
filing
of
Retur
n

8 years No

Yes

8 years No

Yes

4 years Yes

Yes

Long term capital

gains
Other losses
1. Loss from
activity of
owning and

Profit from activity

of owning and
maintaining race

11

Order of set off of losses

The order of set off of losses is as under :
(a) Current year depreciation / current year capital expenditure on
scientific research / current year expenditure on family planning
(b)Brought forward loss from business or profession
(c) Unabsorbed depreciation
(d)Unabsorbed capital expenditure on scientific research
(e) Unabsorbed expenditure on family planning

12

Illustration 1
Mr. A submits the following particulars for AY 2013-14. Compute his gross total income.
Rs.
Income from salaries
4,00,000
Loss from self occupied property
(-)70,000
Business loss
(-)1,00,000
Bank interest received
80,000
Solution 1
Income from salaries
4,00,000
Income from house property (-) 70,000
------------3,30,000
Business income (-)1,00,000
Bank interest received
80,000
-----------Business loss to be carried forward
------------Gross total income 3,30,000
========

(-)

20,000

13

Illustration 2
Mr. B furnishes the following particulars for AY 2013-14. Compute his
gross total income.
Rs.
Income from salaries
45,000
Income from house property
(24,000)
Income from business non speculative
(22,000)
Income from business speculative
(4,000)
Short term capital gains
(25,000)
Long term capital gains
19,000

14

Solution 2
Income from salaries 45,000
Income from house property (24,000)
-----------21,000
Profits and gains of business & profession
Income from business non speculative
(22,000)
Income from business speculative (4,000)
-----------Business loss to be carried forward
(26,000)
Capital gains
Short term capital gains
(25,000)
Long term capital gains
19,000
----------Short term capital loss to be carried forward
---------Gross total income 21,000
======

(6,000)

15

Illustration 3
For AY 2013-14, Mr. C has the following income and brought forward
losses. What is the taxable capital gains for AY 2013-14?
Rs.
Short term capital gains on sale of shares
1,50,000
Long term capital loss of AY 2011-12
(96,000)
Short term capital loss of AY 2012-13
(37,000)
Long term capital gain
75,000

16

Solution 3
Rs.
Short term capital gains on sale of shares
1,50,000
Less : Short term capital loss of AY 2012-13
(37,000)
-----------1,13,000
Long term capital gain
75,000
Less : Long term capital loss of AY 2011-12
(96,000)
-----------Long term capital loss of AY 2011-12 to be carried forward (21,000)
-------------Taxable short term capital gain
1,13,000
========

17

Illustration 4
Mr. D has the following income for AY 20132-14. Compute Mr. Ds
gross total income.
Rs.
Income from the activity of owning and maintaining race horses
75,000
Income from textile business
85,000
Brought forward textile business loss
(50,000)
Brought forward loss from the activity of owning and
maintaining race horses (pertaining to AY 2010-11)
(96,000)

18

Solution 4
Rs.
Income from the activity of owning and maintaining race horses
Less : Brought forward loss from the activity of owning and
maintaining race horses (96,000)
-----------Loss from the activity of owning and maintaining race horses
to be carried forward (21,000)
Income from textile business
85,000
Less : Brought forward textile business loss
-----------35,000
--------Gross total income 35,000
======

75,000

(50,000)

19

Illustration 5
Mr. E has furnished the following details for AY 2013-14. Compute his
gross total income.
Rs.
Income from salaries
1,50,000
Income from speculation business
60,000
Income from non-speculation business
(40,000)
Short term capital gain
80,000
Long term capital loss of AY 2011-12
(30,000)
Winning from lotteries
20,000

20

Solution 5
Rs.
Income from salaries
1,50,000
Profits and gains of business or profession
Income from speculation business
60,000
Less : Income from non-speculation business
(40,000)
---------20,000
Capital gains
Short term capital gain
80,000
Long term capital loss to be carried forward
(30,000)
Income from other sources
Winning from lotteries
20,000
------------Gross total income 2,70,000
========
21

Illustration 6
Compute the gross total income of Mr. F for AY 2013-14 from the
information given below :
Rs.
Income from house property
1,25,000
Income from business (before providing for depreciation) 1,35,000
Short term capital gain on sale of shares
56,000
Long term capital loss from sale of property
(brought forward from AY 2012-13)
(90,000)
Current year depreciation
26,000
Brought forward business loss
(loss incurred six years ago)
(45,000)

22

Solution 6
Rs. Rs.
Income from house property
1,25,000
Profits and gains of business or profession
Income from business (before depreciation)
1,35,000
Less : Current year depreciation
(26,000)
------------1,09,000
Less : Brought forward business loss
(45,000)
------------64,000
Capital gains
Short term capital gain on sale of shares
56,000
Brought forward long term capital loss from
sale of property to be carried forward (90,000)
-----------Gross total income
2,45,000
=======
23