Setoff of Setoff of losseslosses

Presented by,Presented by,Morteza.AMorteza.A

22ndnd sem M.F.M sem M.F.MManasa GangothriManasa GangothriMysoreMysore..

Setoff of lossesSetoff of losses This provides us to know the This provides us to know the

provision for adjusting the losses provision for adjusting the losses against profit.against profit.

Meaning of setoff of lossesMeaning of setoff of losses

If an assesses gets loss If an assesses gets loss from a source of income he from a source of income he will be allowed to setoff it will be allowed to setoff it against other incomes before against other incomes before ascertaining tax liability is ascertaining tax liability is known as “setoff of losses”.known as “setoff of losses”.

ProvisionsProvisions regarding setoff regarding setoff of lossesof losses

• Inter-source adjustments u/s 70Inter-source adjustments u/s 70•Inter-headInter-head adjustment u/s 71 adjustment u/s 71

Inter sources adjustment u/s Inter sources adjustment u/s 7070

An assesses will be allowed An assesses will be allowed to setoff any loss from one source to setoff any loss from one source of a particular head against profit of a particular head against profit from other source under the same from other source under the same head. head.

IllustratedIllustrated

(income) (loss)(income) (loss) Rs 3.5 lakh Rs 1 lakhRs 3.5 lakh Rs 1 lakhIn this case, loss of Rs 1 lakh from In this case, loss of Rs 1 lakh from

business B can be setoff against business B can be setoff against income of Rs 3.5 lakhincome of Rs 3.5 lakh

Mr.X

A business B business

Exceptions to the aforesaid Exceptions to the aforesaid rulesrules

• Loss from speculation businessLoss from speculation business• Loss from any specified businessLoss from any specified business• Loss from the activity of owning Loss from the activity of owning

and maintaining race horsesand maintaining race horses• Long term capital lossLong term capital loss• Loss occurred from winning from Loss occurred from winning from

lotteries, crossword , puzzles etc lotteries, crossword , puzzles etc

Other pointsOther points • Loss from a house property Loss from a house property • Loss from a non-speculative Loss from a non-speculative

businessbusiness• Short term capital lossShort term capital loss

IllustratedIllustrated

Capital asset Which is

transferred

A B C

Short-termRs.

Long-termRs.

Short-termRs

Long-termRS

Short-termRs.

Long-termRs.

P

Q

R

S

2,50,000

(-)90,000

4,00,000

(-)3,80,000

4,60,000

(-)4,90,000

80,000

(-)15,000

3,12,000

(-)80,0005,56,00

(-)5,90,000

Total 1,60,000 20,000 (-)30,000 65,000 2,32,000 (-)34,000

Inter head adjustment u/s Inter head adjustment u/s 7171 If an assesses can’t setoff loss If an assesses can’t setoff loss

from a particular source under the from a particular source under the same head, he can setoff that loss same head, he can setoff that loss against incomes under other heads.against incomes under other heads.

IllustratedIllustratedBusiness income

RsProperty income

Rs

Business A

Business B

Income from house property

(-)2,90,000

70,000

5,10,000

Total (-)2,20,000 5,10,000

ExceptionsExceptions •Loss in speculation businessLoss in speculation business•Loss in specified businessLoss in specified business•Loss under the head capital gains Loss under the head capital gains •Loss from the activity of owing and Loss from the activity of owing and

maintaining race horsesmaintaining race horses•Loss can’t be setoff against winning Loss can’t be setoff against winning

lotterylottery•Loss from business Loss from business

Presented to,Presented to,Dr. Mahadevappa,Dr. Mahadevappa,Dos of commerce,Dos of commerce,Manasa gangothri,Manasa gangothri,

Mysore.Mysore.

Thank you,Thank you,For being such For being such

a good a good audienceaudience..