Set off of Losses Under Income Tax Act 1961

The set off of losses may be done in following steps.

Ø      Inter-source adjustment under the same head of income in same   assessment year.

Ø      Inter-head adjustment in the same assessment year if the loss cannot be set off fully under inter-source adjustment

Section 70 & 71 of the Income Tax Act 1961 brings out the rules for set off of losses under inter source and inter head adjustment in the same assessment year.

Following is the Table showing eligibility to set off of losses in same assessment year

	Income
	Salary	House Property	Business & Profession			Capital Gain		Other Income
			Non- Speculation business	Speculation Business	Specified Business (35AD)	Short Term	Long Term	Other Income	Winning from Lotteries, crossword puzzles, etc	Income from business of owing and maintaining race horses
Loss from House Property	P	P	P	P	P	P	P	P	O	P
Loss from Non- Speculation business	O	P	P	P	P	P	P	P	O	P
Loss from Speculation Business	O	O	O	P	O	O	O	O	O	O
Loss from Specified Business (35AD)	O	O	O	O	P	O	O	O	O	O
Short Term Capital Loss	O	O	O	O	O	P	P	O	O	O
Long Term Capital Loss	O	O	O	O	O	O	P	O	O	O
Loss from business of owing and maintaining race horses	O	O	O	O	O	O	O	O	O	P
P	Set off allowed
O	Set off not allowed

Section 70

Set off, or carry forward and set off

 [Set off of loss from one source against income from another source under the same head of income.

70. (1) Save as otherwise provided in this Act, where the net result for any assessment year in respect of any source falling under any head of income, other than “Capital gains”, is a loss, the assessee shall be entitled to have the amount of such loss set off against his income from any other source under the same head.

(2) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any short-term capital asset is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset.

(3) Where the result of the computation made for any assessment year under sections 48 to 55 in respect of any capital asset (other than a short-term capital asset) is a loss, the assessee shall be entitled to have the amount of such loss set off against the income, if any, as arrived at under a similar computation made for the assessment year in respect of any other capital asset not being a short-term capital asset.]

Section 71

 ⁷⁴ [Set off of loss from one head against income from another.

 ⁷⁵ 71. (1) Where in respect of any assessment year the net result of the computation under any head of income, other than “Capital gains”, is a loss and the assessee has no income under the head “Capital gains”, he shall, subject to the provisions of this Chapter, be entitled to ⁷⁶ have the amount of such loss set off against his income, if any, assessable for that assessment year under any other head.

(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than “Capital gains”, is a loss and the assessee has income assessable under the head “Capital gains”, such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head “Capital gains” (whether relating to short-term capital assets or any other capital assets).

 ⁷⁷ [(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), where in respect of any assessment year, the net result of the computation under the head “Profits and gains of business or profession” is a loss and the assessee has income assessable under the head “Salaries”, the assessee shall not be entitled to have such loss set off against such income.]

(3) Where in respect of any assessment year, the net result of the computation under the head “Capital gains” is a loss and the assessee has income assessable under any other head of income, the assessee shall not be entitled to have such loss set off against income under the other head.]

 ⁷⁸ [(4) Where the net result of the computation under the head “Income from house property” is a loss, in respect of the assessment years commencing on the 1st day of April, 1995 and the 1st day of April, 1996, such loss shall be first set off under sub-sections (1) and (2) and thereafter the loss referred to in section 71Ashall be set off in the relevant assessment year in accordance with the provisions of that section.]