set off of unabsorbed depreciation?

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Shrey Malviya

Shrey Malviya (Querist)
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23 June 2009 Hi,i want to ask can the unabsorbed depriciation be set off from income under the head salary?

CA Devanshi Gandhi (Ajani)

CA Devanshi Gandhi (Ajani) (Expert)
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23 June 2009 no

Shrey Malviya

Shrey Malviya (Querist)
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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...?

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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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.

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### **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"**.

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### **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.

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### **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.

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### **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**.

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Let me know if you need further clarification or case law references on this topic!

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