Setoff of business loss -intra head

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

01 December 2015 i am having a business loss of Rs.25 lacs
i am having short term capital gain taxable u/s 111A OF Rs.33 lacs
i am having income form other sources of Rs.19 lacs
i am having salary income of Rs.12 lacs

can i adjust income from other sources first against the business loss and then adjust balance against STCG.

i am also having a carry forward STCLOSS OF 9 LACS.

is there any provision in law which says that intra head adjustments are to be from the angle of beneficial to assessee.

please reply urgent.

CA CS LAVESH VASYANI

CA CS LAVESH VASYANI (Expert)
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04 December 2015 Business loss of Rs. 25 lacs is to be adjusted against stcg of Rs. 33 lacs first i.e. (33-25). The balance lying is STCG is 8 Lacs is to be adjusted against b/f 12 Lacs. The C/f STCL is 4.

Total Income
Salary - 12
STCL - 4 (to be c/f)
OS - 19

Total 16

Querist : Anonymous

Querist : Anonymous (Querist)

04 December 2015 cant we adjust the business loss against income from other sources first and then the balance from stcg as it will drastically reduce my liability and as such the rate of tax on stcg is different from regular rate of tax. then as per my view it should be adjusted with other sources first.

CA CS LAVESH VASYANI

CA CS LAVESH VASYANI (Expert)
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05 December 2015 No you cant adjust business loss against other source directly. There is a hierarchy of heads in which the capital gain comes before the other sources.

Querist : Anonymous

Querist : Anonymous (Querist)

05 December 2015 is this stated any where in the law that the hierarachy has to adopted as per my knowledge it is what is beneficial to the assessee.
please guide

Querist : Anonymous

Querist : Anonymous (Querist)

05 December 2015 act or sections are to be read to the benefits of the assessee that is what i know.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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25 July 2025 In your case, you are dealing with a **business loss** and **short-term capital gain (STCG)** under **Section 111A**, along with **income from other sources** and **salary income**. You want to adjust the business loss against **income from other sources** first, instead of against the **STCG**.

### Let’s break it down:

1. **Adjustment of Business Loss:**

* **Section 71(1)** of the Income Tax Act allows you to **set off losses under a head of income against income under the same head** (i.e., intra-head set-off).
* In your case, you have a **business loss of ₹25 lacs**, which falls under the head **"Profits and gains of business or profession"**.
* This **business loss** should first be set off against any **income from the same head** (business income). However, since you don’t seem to have any **business income**, you cannot set off the business loss against your salary income or other sources directly.

2. **Adjustment of Business Loss Against STCG:**

* Under **Section 71(3)** of the Income Tax Act, **business losses cannot be adjusted against capital gains**, as they are different heads of income. Therefore, you **cannot** directly adjust your **business loss against STCG**.

* **Business losses can only be adjusted against other business income or carried forward** if there is no matching income in the same year.

* You **must** first adjust the **business loss** against your **STCG** (as STCG is subject to a concessional tax rate of 15% under Section 111A). After that, any remaining loss can be adjusted against **other sources of income** or carried forward.

3. **Adjustment Hierarchy:**

* While **Section 71** allows you to set off losses against income from the same head first, the Act does not specifically provide that you can choose to adjust the loss in any order you like. There is a **specific hierarchy** to be followed when adjusting losses under different heads:

* **Business Losses** (under Section 71) must first be set off against **business income**, and only the balance can be adjusted against **capital gains**, and so on.
* The **law does not permit arbitrary adjustment** that may be beneficial to the assessee. The hierarchy needs to be followed strictly.

4. **Carry Forward of Losses:**

* After the business loss is adjusted against STCG, if any loss remains unadjusted, it can be **carried forward** to the next assessment year under **Section 72**, subject to the provisions for carry forward of losses.

* Additionally, **short-term capital losses (STCL)** of ₹9 lacs can be carried forward and set off against **future capital gains**.

5. **Concessional Rate on STCG:**

* It’s important to note that **STCG** under **Section 111A** is taxed at a **special rate of 15%**. This is why you might prefer to adjust the business loss against **income from other sources** first, to avoid reducing the STCG, which is taxed at a concessional rate.
* However, as per the **law**, the **hierarchy of set-off** must be followed, and business loss cannot be adjusted against other income directly.

### Answer to Your Query:

* **You cannot adjust the business loss against income from other sources directly**. It must first be set off against **STCG**, as per the provisions of the Income Tax Act.
* The Act follows a **strict hierarchy** of set-off and **does not allow flexibility** in adjusting losses in any order, even if it is beneficial to the assessee.
* The law does not provide a provision that allows adjusting losses in a manner that is beneficial to the taxpayer unless specifically allowed under certain sections.

### Recommendation:

* **Follow the statutory hierarchy**: Adjust the **business loss** against **STCG** first.
* If there is any remaining loss, it can then be adjusted against **income from other sources** or carried forward as per the provisions of the Act.

Let me know if you need further clarification!

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