Contents -
1. Aggregation of income : Section 66 to 69D.
2. Set off of loss from one source against income from another source under same head of income : Section 70.
3. Set off of loss from one head against income from another : Section 71.
4. Carry forward and set off : Section 72 to 74A.
5. Losses of firms : Section 75.
6. Carry forward and set off of losses of certain companies : Section 79.
7. Submission of return for losses : Section 80.
Introduction -
The meaning of set off is as follows :
Set off means the adjustment of certain losses against the income under the other sources / heads is known as set off.
Carry forward :
The students from the commerce faculty are well know the meaning of carry forward in the subject of accountancy. The balance of any ledger account is carried forward to the next year. i.e. the subsequent year.
Here with reference to the provisions of the Income Tax Act, the carry forward means carrying forward certain losses for set off im subsequent assessment year. The loss occurred by the assessee is not automatically carry forward. It is very important to note that firstly, the assessee must declare such loss in the relevant year through the tax return, to be filled to the assessing officer and carry forward the loss to the next year as per the provisions of the Income Tax Act.
The assessee is required to file the return under Section 139 (3) before the due date, for availing carry forward any business loss or capital loss.
In this category there are two parts :
1) Aggregation of income section 66 to 69D
2) Set off and carry forward of losses Section 70 to 80
Q. Explain the provisions regarding set off, carry forward loss and set off losses under Income Tax Act.
- Aggregation of Income : Section (66) -
Method of computing a members share in income of association of persons or body of individuals (Section 67A) -
1) In computing the total income of an assessee who is a member of an association of person or a body of individuals where in the shares of the members are determinate and known, or under any law of corresponding to that act in force in any part of India whether the net result of the computation of the total income of such association or body is a profit or loss, his share shall be completed as follows namely :
a) Any interest, salary, bonus, Commission or remuneration by whatever name called, paid to any member in respect of the previous year shall be deducted from the total income of the association or body and the balance ascertained and appropriated among the members in the proportion in which they are entitled to share in the income of the association or body.b) Where the amount appropriate to a member under clause (a) is a loss, any interest, salary, bonus, commissioner or remuneration aforesaid paid to the member by the association of body in respect of the previous year shall be adjusted against that amount.c) Where the amount apportioned to a member under clause (a) is a profit, any interest, salary, bonus, Commission for remuneration aforesaid paid to the member by the association or body in respect of the previous year shall be added to that amount.
2) Any interest paid by a member on capital borrowed by him for the purpose of investment in the association or body shall, in computing his share chargeable under the head "profits and gains of business or profession" in respect of his share in the income of the association or body be deducted from his share.
Cash Credits (Section 68) -
Where any sum is found credited in the books of an assessee maintained for any previous year and the assessee offers, no explanation about the nature and source there of or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory the sum credited may be charged to Income Tax as the income of the assessee of that previous year.
Section 68 has been amended with effect from assessment year 2013-14 to provide that the nature and source of any sum credited as share capital, share premium etc. in the books of a closely held company shall be treated as explained only, if the source of funds is also explained by the recipient assessee company in the hands of the resident share holder.
The onus of satisfactorily explaining such credits remains on the person in whose books such sum is credited. If such person fails to offer an explanation or the explanation is not found to be satisfactory then the sum is added to the total income of the person.
Unexplained Investment (Section 69) -
Where in the financial year immediately preceding the assessment year the assessee has made investment which are not recorded in the books of account. If any, mentioned by him for any source of income and the assessee offers no explanation about the nature and source of the investments or the explanation offered by him is not in the opinion of the assessing officer, satisfactory the value of the investments may be Deemed to be the income of the assessee of such financial year.
Unexplained Money, etc (Section 69A) -
Where in any financial year the assessee is found to be the owner of any money, bullion, jewelry or other valuable article and such money, bullions, jewellery or valuable article is not recorded in the books of account. If any, mention by him for any source of income and the assessee offers no explanation about the nature and source of acquisition of the money, bullions, jwellary or other valuable article or the explanation offered by him is not in the opinion of the assessing officer, satisfactory, the money and the value of the bullion, jewelry or other valuable article may be Deemed to be the income of the assessee for such financial year.
Amount of investments etc. not fully disclosed in books of account (Section 69B) -
Where is any financial year the assessee has made investment or is found to be the owner of any bullions, jewellery or other valuable article and the assessing officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of, no explanation about such excess amount or the explanation offered by him is not, the excess amount may be deemed to be the income of the assessee for such financial year.
Unexplained Expenditure etc. (Section 69C) -
Where in any financial year an assessee has incurred any expenditure and he offers no explanation about the source of such expenditure or part there of, or the explanation, if any, offered by him is not in the opinion of the assessing officer, satisfactory, the amount covered by such expenditure or part there of, as the case may be, deemed to be the income of the assessee for such financial year.
Amount borrowed or repaid on Hundi (Section 69D) -
Where any amount is borrowed on a hundi from, or any amount due there on is repaid to any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be Deemed to be the income of the person borrowing or repaying the amount oforesaid for the previous year in which the amount was borrowed or repaid as the case may be.
Explanation : The amount repaid shall include the amount of interest paid on the amount borrowed.
- Set off of loss for one source against income from another source under the same head of income (Section 70) -
Where the net result for any assessment year in respect of any source falling under any head of income, other than "capital gain" if a loss, the assessee shall be e entitled to have the amount of such loss set off against his income from any other source under the same head.
- Set off of loss from one head against income from another (Section 71) -
In respect of set off of losses from one head of income to another head, in the same previous year. However the following exceptions :
1. Speculation loss
2. Loss from activity of owning and maintaining race horses.
3. Loss under "Capital Gain" i.e. long term or short-term.
4. Loss under "profits and gains of business or profession" against salary income.
- Carry forward and set off of business losses (Section 72) -
In respect of loss from business or profession for 8 year provided such a loss return is field on the prescribed dated (31st July, and 31st October each year) under section 139(I).
Section 72A -
Section 72A is related to the loss of amalgamation of companies or demerged companies at the time of amalgamation or demerger. The condition mentioned in this section must be satisfied.
Section 72AA -
Section 72AA in regard to the carry forward of losses in the case of Banking companies at the time of amalgamation or demerger. The conditions must be followed by such companies.
Section 73 : Losses in speculation business -
Section 73 is in respect of losses being carried forward for 8 assessment year, provide the loss return is filled by the due dates as mentioned in Section 139(I) i.e. 31st July and 31st October.
Section 74 : Losses under the head "Capital Gains" -
Section 74 is in regard to loss of capital assets at the long term of short-term. Here also such a loss shall be carry forward for 8 years provided the loss return is filled as per Section 139(I) i.e. 31st July and 31st October.
Section 74A -
Section 74A is in respect of carry forward of loss of owner of Race horses. Such loss be carried forward only for four assessment year provided the loss return is field on the specified date mentioned in Section 139(I) i.e. 31st July and 31st October.
- Losses of Firms (Section 75) -
Where the assessee is a firm, any loss in relation to the assessment year commencing on or before the 1st day of April, 1992, which could not be set off against any other income of the firm and which had been approtioned to a partner of the firm but could not be set off by such partner prior to the assessment year commencing on the 1st day of April, 1993, then such loss shall be allowed to be set off against the income of the firm subject to the condition that the partner continues in the said firm and to be carry forward for set off under section 70, 71, 72, 73 74 and 74A.
Section 76 and section 77 omitted by the finance act, with effect from 1-4-1993.
Section 78 : Carry forward and set off of losses in case of change in constitution of firm or on succession.
Section 78 is in respect of losses in case of change in constitution of firm or on succession.
- Carry forward and set off of losses in the case of certain companies (Section 79) -
Where is change in shareholding has taken place in a previous year in the case of a company not being a company in which the public are substantially interested, no loss incurred in any year prior to the previous year shall be carried forward and set off against the income of the previous year.
- Submission of returns for losses (Section 80) -
No loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub section (3) of Section 139. Shall be carried forward and set off under Section 72(1) of Section 73(2) of section 74 (1) of (3).
With the help of the following chart, which will enable to understand the rules of set off / carry forward :
|
Details Of Loss |
Set Off Against Income In The Same A.Y. |
Set Off Against Income In The
Subsequent A.Y. |
Carry Forward Allowed For (Years) |
|
House property let out or self
occupied |
Income from any head of income |
Income from house property |
8 |
|
Short term capital loss |
Capital gain (short term or long term) |
Capital gain (short term or long term) |
8 |
|
Long term capital loss |
Long term capital gain |
Long term capital gain |
8 |
|
Owing and maintaining race horses |
Such income only |
Such income only |
4 |
|
Income from other sources |
Income from any head of income |
No carry forward |
Not Applicable |
|
Business loss other than Speculation
loss / unabsorbed depreciation |
Income from any head of income other
than salary |
Profit of business or profession |
8 |
|
Unabsorbed Depreciation |
Income from any head of income other
than salary |
Income from any head of income other
than salary |
Unlimited period |
|
Speculation loss |
Speculation profit only |
Speculation profit only |
4 |
