Company Taxation

Tax Losses

The ITA deals with losses arising under the following heads of income:

  • Losses under the head ‘Income from house property’
  • Losses under the head ‘Business income,’ further split into ‘Business loss’ and ‘Unabsorbed depreciation’
  • Losses under the head ‘Speculation business income’
  • Losses under the head ‘Capital gains’, further classified into ‘Long-term capital loss’ and ‘Short- term capital loss’
  • Losses under the head ‘Income from other sources’

These losses are computed under the different provisions of the ITA, and there are various provisions governing the set-off and carrying forward of such losses. Also, the losses under the head ‘Income from house property’ and ‘Business income’ can be set off against income from any other head computed for the same year. However, losses under the head ‘Speculated loss’ and ‘Capital loss’ can be set off only against 'Speculated gain' and 'Capital gain' respectively, computed for the year.

This is shown in the following table:

Loss under the head Can be set off in subsequent years against
Salaries Income from house property Business income Speculated business income Short- term capital gains Long- term capital gains Income from other sources
Loss from house property
Business loss
Speculated business loss
Unabsorbed depreciation
Short-term capital loss
Long-term capital loss
Loss from income from other sources

There are also restrictions on the utilization of tax losses under each head when they are carried forward to subsequent years, as shown in the following table:

Loss under the head Can be set off in subsequent years against
Salaries Income from house property Business income Speculated business income Short- term capital gains Long- term capital gains Income from other sources
Loss from house property
Business loss
Speculated business loss
Unabsorbed depreciation
Short-term capital loss
Long-term capital loss
Loss from income from other sources

There are specific provisions for carrying forward losses with respect to the head of income against which theycan be set off and the time limit for each, which are mentioned below:

Nature of loss Can be set off against Number of years that it can be carried forward for
Loss from house property Income from House Property 8 years
Business loss Business profits 8 years
Speculated business loss Speculated business profit 4 years
Unabsorbed depreciation Business profit 8 years
Short-term capital loss Capital gain (short term or long term) 8 years
Long-term capital loss Long term capital gains 8 years

It is pertinent to note that closely held companies are required to satisfy a 51% continuity of ownership criteria for carrying forward business losses.

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Maulik Doshi
Senior Executive Director
Transfer Pricing and Transaction Advisory Services

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