Setting off business loss against income which is below basic exemption

Hi,

Can anyone help me with understanding my below query:

if my business income is 4 lakhs

unabsorbed depreciation 2lakh

c/f business loss 1lakh

should I set off both depreciation and business loss? or set off business loss 1 lakh and unabsorbed depn only to the extent of 50,000, to allow assessee to claim basic exemption of 2,50,000?