When any loss relating to any particular previous year is set-off against the income of same previous year, it is called 'set-off of losses.'
In this article, we will discuss to set-off loss from one source against income from another source within the same head of income, i.e., inter source set off [Sec. 70]
The income under one head is computed by adding together the incomes from different sources which fall under the same head. Section 70 says that the loss of one source is adjusted against the income of another source falling under the same head of income. Suppose the assessee is running two-three different businesses and the income of the head is calculated by combining different sources. So it is automatic that if there is loss under one source, the same is adjusted or set-off against the available income under other sources in the same head of income.
There are six exceptions to this rule that a loss can be set-off against any other income under the same head
(i) Speculation loss (Section 73(1)]
Any loss computed in respect of speculation business carried on by 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 non-speculation business loss and not as speculation business.
The business of purchase and sale of shares not to be treated as speculation business [Explanation to section 73] (w.e.f. A.Y. 2015-16]
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) Loss from specified business referred to in Section 35AD [Section 73A(1)]
Any loss, computed in respect of any specified business referred to in Section 35AD (For example, business of cold chain facility, warehousing business for storage of agricultural produce etc.) shall be allowed to be set off only against income from any other specified business referred to in Section 35AD. It cannot be set off against income from any other business.
(iii) Long-term capital loss
Long-term capital loss from the transfer of a capital asset shall be allowed to be set off only out of the long-term capital gain from the transfer of another long-term capital asset. Such a loss cannot be set-off from short term capital gain. However, short-term capital loss shall be allowed to be adjusted out of long term as well as short-term capital gain.
(iv) Loss from owning and maintenance of race horses
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
(v) Loss from an exempted source of income
If a person has loss from a source of income which is exempt under any provision of this Act, such loss cannot be set-off against the income of any other source which is taxable. For example, agriculture loss cannot be set-off against non-agricultural income.
(vi) Loss in respect of casual income falling under Section 56(2)(ib)
Any loss on account of lottery, gambling, betting, winning from races (including horse races), etc. cannot be set-off against any other income falling under the head 'Other Source'. In fact, such a loss cannot be set-off at all.
(vii) Any loss cannot be set-off against casual incomes falling U/s 56(2)(ib)
Thus, any loss cannot be set-off against casual incomes like winnings from lotteries, cross-word puzzles, races (including horse race), card game, or other games of any sort or from gambling, betting.
(viii) 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 income under the aforesaid sections.
Tags :income tax