Set off of brought forward Unabsorbed Depreciation

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Sanjay (Querist)
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11 March 2010 Can the Brought Forward Unabsored Depreciation be set off against-
1)Salary Income
2)Short term Capital Gains from Shares?
Thank you all.

CA Robin Betala

CA Robin Betala (Expert)
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11 March 2010 Dear sanjay

1) salary cannot be setoff against Unabsored depriciation
2) But short term capital gain on share can be setoff against Unabsored depreciation

Sanjay

Sanjay (Querist)
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12 March 2010 Robin Sir
can you kindly please refer me relevent section/Case Law that Brought Forward Unabsorbed Depreciation can not be set off against Salary Income.

Sanjay

Sanjay (Querist)
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21 March 2010 Robin Sir
I am waiting for your reply.
please reply soon.

Asha Kanta Sharma online

Asha Kanta Sharma online

(Expert)
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25 July 2025 To address your query on whether **brought forward unabsorbed depreciation** can be set off against **salary income** or **short-term capital gains from shares**, let me explain the legal provisions and case law references.

### Relevant Provisions under the Income Tax Act, 1961:

1. **Unabsorbed Depreciation**:

* Unabsorbed depreciation refers to the depreciation that could not be claimed in the previous year due to insufficient taxable income in that year.
* As per **Section 32(2)** of the Income Tax Act, unabsorbed depreciation can be carried forward to subsequent years and set off against income under the same head — i.e., income from **business or profession**.

2. **Set-off Against Salary Income**:

* **Section 32(2)** and **Section 72** specifically limit the set-off of **unabsorbed depreciation** to income from business or profession.
* Depreciation is a deduction allowed only under the head **"Profit and gains of business or profession"**. Therefore, unabsorbed depreciation cannot be set off against income from other heads like **salary income**, **house property income**, or **capital gains**.
* The income under the head **"Salary"** is separate from **"Business and Profession"**, and depreciation pertains only to business or profession income.

**Legal Reference**:

* **Section 32(2)**: Unabsorbed depreciation can be carried forward and set off only against **business income**.
* **Section 72**: Deals with the carry forward and set-off of business losses, but **does not extend** to setting off unabsorbed depreciation against non-business income like salary.

### Example of Depreciation Set-off:

* If a taxpayer has a business income, and they have unabsorbed depreciation from previous years, they can set it off against the business income. However, they **cannot** set off the depreciation against salary income.

3. **Set-off Against Short-Term Capital Gains from Shares**:

* **Short-term capital gains (STCG)** on shares are taxed under the head **"Capital Gains"**, and depreciation is specifically linked to **business income**.
* However, **unabsorbed depreciation** from a **business or profession** can **only** be set off against business income (profit from business), not against capital gains. Even if the shares are part of a business (like securities trading), depreciation would only be set off against the business income, not directly against short-term capital gains.

**Legal Reference**:

* **Section 32(2)**: Again, this section limits the carry forward and set off of unabsorbed depreciation to the business income, not other heads like capital gains.

### Case Law:

There are **no specific judgments** that directly address unabsorbed depreciation being set off against salary income or short-term capital gains, but the provisions under **Section 32(2)** and the principle that **unabsorbed depreciation** can only be set off against **business income** are well established in law.

### To summarize:

1. **Salary Income**: Unabsorbed depreciation **cannot** be set off against salary income. It can only be set off against business income as per **Section 32(2)**.
2. **Short-Term Capital Gains from Shares**: Similarly, unabsorbed depreciation cannot be set off against **short-term capital gains** from shares. It can only be set off against **business profits**.

### Conclusion:

Unabsorbed depreciation is specifically meant to be set off against **business income** and not against **salary income** or **capital gains**, as per **Section 32(2)** and **Section 72** of the Income Tax Act, 1961. If you want to discuss this further or have more questions on the topic, feel free to ask!

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