set off of unabsorbed depreciation?
This query is : Resolved
23 June 2009
Hi,i want to ask can the unabsorbed depriciation be set off from income under the head salary?
23 June 2009
no
23 June 2009
thanx..i asked this question because in this case different authors have different opinions..can u plz elaborate where this is written in the act or which author u follow...?
25 July 2025
Unabsorbed depreciation cannot be set off against **salary income**. Let me explain the reasoning in more detail and point to the relevant provisions of the Income Tax Act.
---
### **1. Set-off of Unabsorbed Depreciation:**
Under the **Income Tax Act, 1961**, depreciation is treated as a **business expense**. When a business suffers a loss due to depreciation, the unabsorbed depreciation (i.e., depreciation that couldn’t be fully claimed in a given year due to insufficient business income) can be carried forward to future years and set off against future **business income**.
* **Section 32(2)** of the Income Tax Act allows unabsorbed depreciation to be carried forward and set off against **business income** in future years.
* **Unabsorbed depreciation** can be set off against **business income, income from profession**, or **income under the head "capital gains"** (in case of transfer of depreciable assets), but **it cannot be set off against income under the head "salaries"**.
---
### **2. Why Unabsorbed Depreciation Cannot Be Set Off Against Salary Income:**
* Depreciation is a **business expenditure**. It is not a **personal expense**, and hence, it cannot be set off against **salary income**.
* The **Income Tax Act** specifically allows the **set-off of unabsorbed depreciation only against business or professional income** under **Section 32(2)**.
* **Salary income** is not a source of income that is connected with business or profession, so it cannot absorb unabsorbed depreciation.
---
### **3. Relevant Provisions:**
* **Section 32(2)**: **Unabsorbed depreciation can only be set off against income under the head 'Profits and gains of business or profession'.**
* **Section 70** and **Section 71**: These sections deal with **set-off of business losses**, but they do not provide for the set-off of unabsorbed depreciation against **salary income**.
* **Case Law**: There are various rulings by the **Income Tax Appellate Tribunal (ITAT)** and **High Courts** affirming that unabsorbed depreciation cannot be set off against salary income.
---
### **Conclusion:**
Unabsorbed depreciation is **restricted to being set off only against business or professional income** (including future years), and not against **salary income**. This is the reason why authors and tax experts state that **unabsorbed depreciation cannot be set off against salary income**.
So, when you read conflicting opinions from different authors, keep in mind that the **law does not allow** depreciation to be set off against **salary income**.
---
Let me know if you need further clarification or case law references on this topic!
---
### **1. Set-off of Unabsorbed Depreciation:**
Under the **Income Tax Act, 1961**, depreciation is treated as a **business expense**. When a business suffers a loss due to depreciation, the unabsorbed depreciation (i.e., depreciation that couldn’t be fully claimed in a given year due to insufficient business income) can be carried forward to future years and set off against future **business income**.
* **Section 32(2)** of the Income Tax Act allows unabsorbed depreciation to be carried forward and set off against **business income** in future years.
* **Unabsorbed depreciation** can be set off against **business income, income from profession**, or **income under the head "capital gains"** (in case of transfer of depreciable assets), but **it cannot be set off against income under the head "salaries"**.
---
### **2. Why Unabsorbed Depreciation Cannot Be Set Off Against Salary Income:**
* Depreciation is a **business expenditure**. It is not a **personal expense**, and hence, it cannot be set off against **salary income**.
* The **Income Tax Act** specifically allows the **set-off of unabsorbed depreciation only against business or professional income** under **Section 32(2)**.
* **Salary income** is not a source of income that is connected with business or profession, so it cannot absorb unabsorbed depreciation.
---
### **3. Relevant Provisions:**
* **Section 32(2)**: **Unabsorbed depreciation can only be set off against income under the head 'Profits and gains of business or profession'.**
* **Section 70** and **Section 71**: These sections deal with **set-off of business losses**, but they do not provide for the set-off of unabsorbed depreciation against **salary income**.
* **Case Law**: There are various rulings by the **Income Tax Appellate Tribunal (ITAT)** and **High Courts** affirming that unabsorbed depreciation cannot be set off against salary income.
---
### **Conclusion:**
Unabsorbed depreciation is **restricted to being set off only against business or professional income** (including future years), and not against **salary income**. This is the reason why authors and tax experts state that **unabsorbed depreciation cannot be set off against salary income**.
So, when you read conflicting opinions from different authors, keep in mind that the **law does not allow** depreciation to be set off against **salary income**.
---
Let me know if you need further clarification or case law references on this topic!
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